Financial statements

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1 ANNUAL REPORT 2017

2 Strategic report Governance Financial statements Shareholder information 2 Financial & non-financial highlights 6 Our market position 8 At a glance 9 Sectorisation 12 Chairman s statement 14 How we create value 18 Chief Executive s review 20 Regional review 20 North America 22 Europe 24 Rest of World 26 Key performance indicators 28 Business review 34 Risk management 37 Corporate Responsibility 42 Governance and Directors report 42 Chairman s letter 44 Introduction to Corporate Governance 47 Our Board 50 Corporate Governance 54 Audit Committee report 62 Corporate Responsibility Committee report 65 Nomination Committee report 68 Directors Remuneration report 95 Other statutory disclosures 101 Directors responsibilities 102 Independent auditor s report 107 Consolidated financial statements 113 Group accounting policies 120 Notes to the consolidated financial statements 175 Parent Company financial statements 177 Parent Company accounting policies 179 Notes to the Parent Company financial statements 182 Shareholder information 185 Notice of Annual General Meeting Glossary 195 Glossary of terms Visit our website for related information

3 Compass is the world s leading food service company Every day we provide food to millions of people around the world. The rigorous execution of our strategy continues to deliver shareholder value. And given the structural growth potential in food services globally, we remain positive about the Company s future. Our role As the industry leader, we have an important role in society for the long term. We create opportunities for our people to achieve their greatest potential and enrich their lives. We promote healthy and nutritious food offers for our clients and consumers. Together with our supply chain partners, we set global standards to ensure we consistently source our food responsibly and sustainably. Based on published revenues, employees and meals served. 1

4 FINANCIAL & NON-FINANCIAL HIGHLIGHTS 2017 was another year of progress UNDERLYING REVENUE 22,852m UNDERLYING OPERATING PROFIT 1,705m UNDERLYING OPERATING MARGIN 7.4% UNDERLYING BASIC EARNINGS PER SHARE 72.3p ,705 1,445 1,296 1,245 22,852 19,871 17,843 17, Throughout the Strategic Report, and consistent with prior years, underlying and other alternative performance measures are used to describe the Group s performance. These are not recognised under IFRS or other generally accepted accounting principles (GAAP). The Executive Board of the Group manages and assesses the performance of the business on these measures and believes they are more representative of ongoing trading, facilitate meaningful year on year comparisons and hence provide more useful information to shareholders. All underlying measures are defined in the glossary of terms on page 196. A summary of the adjustments from statutory to underlying results is shown on page 161 and further detailed in the consolidated income statement (page 107), reconciliation of free cash flow (page 112), note 1, segmental reporting (pages 120 to 123) and note 5, tax (pages 127 and 128). GLOBAL LOST TIME INCIDENT FREQUENCY RATE -26% GLOBAL FOOD SAFETY INCIDENT RATE -14% GREENHOUSE GAS INTENSITY RATIO -18% NUMBER OF SITES OFFERING HEALTHY EATING PROGRAMMES +8% (since 2014) (since 2014) (since 2014) (since 2014) 17,980 17,576 16,900 16,

5 STRATEGIC REPORT STATUTORY REVENUE 22,568m STATUTORY OPERATING PROFIT 1,665m DIVIDEND PER SHARE 33.5p STATUTORY BASIC EARNINGS PER SHARE 71.3p ,665 1,409 1,261 1,214 22,568 19,605 17,590 16, BUSINESS BENCHMARK ON FARM ANIMAL WELFARE CARBON DISCLOSURE PROJECT SCORE 2017 CODE OF BUSINESS CONDUCT NEW APPROVED SUPPLIER SIGNATORIES CONTRACTED DURING 2017 WOMEN IN GLOBAL LEADERSHIP TEAM Tier 4 (2016) Leadership A- 100% (2016: 100%) 28% (2016: 26%) (2016: Leadership A-) 3

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7 The global leader We estimate that the addressable global food services market is currently worth around 200 billion. We have around a 10% share of that market by sales which makes us the leading global provider. Given that approximately 75% of the market is serviced by regional players or in-house providers, we believe that there is a significant structural growth opportunity for us. 5

8 OUR MARKET POSITION Global food services market LARGE PLAYERS COMPASS GROUP 16% 10% 24% 50% SELF OPERATED REGIONAL PLAYERS STRUCTURAL GROWTH OPPORTUNITY Numbers relating to market size and penetration rates are based on management estimates and a range of external data. 6

9 Significant structural growth opportunity across our sectors and markets STRATEGIC REPORT The market for food and support services continues to offer significant growth potential as we drive outsourcing and deliver a strong proposition across our sectors and regions. Compass provides outsourced food and support services in around 50 countries in a market worth over 400 billion (comprising approximately 200 billion food service and 200 billion support services). The five sectors in which Compass operates are: Business & Industry; Healthcare & Seniors; Education; Sports & Leisure and Defence, Offshore & Remote. All five sectors continue to offer significant opportunities for growth. Food service remains at the core of the Compass offer. Business & Industry accounts for around 40% of this value, and this important sector continues to offer attractive growth opportunities. In more developed markets where outsourcing rates are routinely in excess of 60%, our combination of scale, efficiencies and first class service delivery supports continued revenue growth. In more emerging markets, outsourcing rates are still only around 10%, providing an enormous opportunity for future growth in our core sector. The Healthcare & Seniors and Education sectors also continue to grow, with less than half of the addressable global market currently outsourced. We are developing operational excellence in areas such as our proposition for hospital visitors and nutritional meal planning in schools and, by sharing this expertise, we can better serve our clients and consumers across multiple markets. Sports & Leisure is a highly outsourced sector with a global outlook in which we benefit from our strong reputation across key markets. The Defence, Offshore & Remote sector offers significant opportunities to build lasting strategic relationships with large local and international operators. Creating strong client relationships allows us to respond positively to tougher market conditions. For example, in the basic commodities sector where we have leveraged our cost base and changed our offer to meet our clients needs and have retained business in the face of real budgetary pressure. Support services remains an important market for Compass, particularly in Healthcare & Seniors and Defence, Offshore & Remote. In these sectors, we are recognised for fulfilling the needs of clients who require excellent services with uncompromising quality. In all the markets and regions in which Compass operates, we continue to build our business and our reputation based on our ongoing focus on health and safety, the environment and our firm commitment to responsible corporate practices. 7

10 AT A GLANCE Focused on food Food is our core competence. We create value for our customers by providing a wide range of innovative and healthy dining solutions in a sustainable way. WE OPERATE IN AROUND 50 WE WORK IN OVER 55,000 WE EMPLOY MORE THAN 550,000 WE SERVE OVER 5.5 billion COUNTRIES CLIENT LOCATIONS DEDICATED PEOPLE MEALS A YEAR A TRULY INTERNATIONAL BUSINESS We manage our business in three geographic regions. Our increasing scale allows us to achieve our goal of being the lowest cost, most efficient provider of food and support services. Scale is a benefit in terms of food procurement, labour management and back office costs. It underpins our competitiveness and enables us to deliver sustainable growth over time. NORTH AMERICA UNDERLYING REVENUE 13,322M (2016: 11,198m) 58.3% of Group total EUROPE UNDERLYING REVENUE 5,911M (2016: 5,458m) 25.9% of Group total REST OF WORLD UNDERLYING REVENUE 3,619M (2016: 3,215m) 15.8% of Group total 8

11 SECTORISATION Understanding our clients STRATEGIC REPORT The global food services market is very large and disparate. That is why we segment the market into various sectors and sub-sectors using our portfolio of B2B brands. It enables us to be closer to our clients and consumers to better understand their different needs. In this way, we can create innovative, bespoke offers that meet their specific requirements and, in doing so, truly differentiate ourselves. BUSINESS & INDUSTRY 39% OF GROUP UNDERLYING REVENUE We provide a choice of quality, nutritious and well balanced food for employees during their working day. In addition, where clients seek broader service offerings, we can deliver a range of support services to the highest standard, and at the best value. OUR BRANDS HEALTHCARE & SENIORS 23% OF GROUP UNDERLYING REVENUE We are specialists in helping hospitals in the public and private sectors on their journey of managing efficiency and enhancing quality across a range of food and support services. We have an increasing presence in the growing senior living market. EDUCATION 18% OF GROUP UNDERLYING REVENUE From kindergarten to college, we provide fun, nutritious dining solutions that help support academic achievement at the highest levels. We educate young people on how to have a happy, safe and healthy lifestyle while contributing to a sustainable world. SPORTS & LEISURE 12% OF GROUP UNDERLYING REVENUE Operating at some of the world s most prestigious sporting and leisure venues, exhibition centres, visitor attractions and major events, we have an enviable reputation for providing outstanding hospitality and true service excellence. DEFENCE, OFFSHORE & REMOTE 8% OF GROUP UNDERLYING REVENUE Through our established health and safety culture, we are a market leader in providing food and support services to major companies in the oil and gas and mining and construction industries. For our defence sector clients, we are a partner that runs efficient operations outside areas of conflict. 9

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13 We act responsibly We seek to achieve our strategic goals in a sustainable way with emphasis on where we believe we can make the most positive social impact, whilst consistently delivering value for all our stakeholders in the long term. 11

14 CHAIRMAN S STATEMENT Consistent performance I m delighted to report another excellent year for Compass. We continue to pursue our clear and focused strategy, which has again delivered a strong performance for shareholders, and we remain positive about the future opportunities we see. I d like to take this opportunity to thank everyone who works for Compass for their hard work and dedication, which are fundamental to our ongoing success was another excellent year for Compass. We continue to pursue our clear and focused strategy, which has again delivered sustainable organic growth and returns for shareholders. North America performed strongly, and revenues in both Europe and Rest of World accelerated in the second half of the year as expected. We improved margins by driving further efficiencies through the business, aided by the end of the restructuring plan in Offshore & Remote. Details of our operational and financial performance can be found on pages 14 to 33. This performance reaffirms the Board s confidence in the effectiveness of our business model and strategy, both of which have been central to our long term success (see pages 14 to 17). SHAREHOLDER RETURNS As a result of our strong performance, the Board is recommending a 5.7% increase in the final dividend for the year of 22.3 pence per share (2016: 21.1 pence per share). This gives a total dividend for the year of 33.5 pence per share (2016: 31.7 pence per share), an increase of 5.7%. The final dividend will be paid on 26 February 2018 to shareholders on the register on 19 January In addition to the ordinary dividend, and as a result of the Group s robust cash generation, we paid a 1 billion special dividend in July and bought back 19 million in shares during the year. We remain committed to maintaining strong investment grade credit ratings and will continue to return surplus cash to shareholders and to target net debt/ebitda of around 1.5x. OUR PEOPLE At Compass, we owe our success to our 550,000+ employees all over the world. I would like to thank them for their commitment and hard work during the year. When I visit the business, I am always impressed by their vast experience and unrelenting focus on our clients and consumers. It is then easier to understand why we ve been so successful and, as importantly, why we expect the success to continue. This was very much in evidence when, as a Board, we visited our award-winning US subsidiary Bon Appétit, in Silicon Valley. It services the premium and high end of the market and is regarded by independent experts as one of the foremost ground-breaking companies in the food service industry. Bon Appétit works with some of the most demanding and innovative clients in the world and their success is an inspiration to all of us to keep raising our game across all our sectors and sub-sectors. CORPORATE RESPONSIBILITY Our people are also central to our ability to achieve our goals in a responsible and sustainable manner. Two years ago, we sharpened our approach to Corporate Responsibility to support the longer term ambition of our business and stakeholders. As part of this strategic review, we agreed to proactively support the UN Sustainable Development Goals (SDGs) and selected the goals where we believe that we can make the most positive social impact. There is still much more to do but I am pleased with the progress that we have made so far. See pages 37 to 41 and for more about our activities. 12

15 STRATEGIC REPORT GOVERNANCE AND THE BOARD Integrity and trust are more important than ever in today s business world. One of my key responsibilities as Chairman is to set the tone for the company and ensure good governance (see pages 42 to 46). In this I have been extremely well supported by the members of the Board. They bring balance and a wealth of skills and experience to our organisation which complement the talents of our executive team. I thank them all for their valuable contribution as we continue to uphold the high standards expected of us, to maintain oversight of the strategic, operational and compliance risks across the Group and to define our path to success. APPOINTMENT OF NEW CHIEF EXECUTIVE In September, we announced a significant change in the Group s Board. Richard Cousins, who has been an outstanding Chief Executive for the past 11 years, will step down from his role on 31 March 2018 and retire from the Group on 30 September It has been a huge pleasure to work with Richard, and on behalf of the Board I want to thank him for his extraordinary contribution to the Group. Richard has transformed Compass into a sustainable, industry-leading organisation that delivers excellent food services to our customers, attracts and develops great people and generates significant returns for shareholders. I am delighted that Richard will be succeeded by Dominic Blakemore, our former Chief Operating Officer, Europe. Dominic became Deputy Chief Executive Officer on 1 October 2017, and will take over as Group Chief Executive Officer on 1 April In the ensuing period, he and Richard will work closely to ensure a smooth transition. Dominic s appointment was the result of a rigorous succession process. He is exceptionally well qualified to lead the business, and has already contributed significantly to the Group, for four years as Group Finance Director and, for the past two years, managing our business in Europe. Dominic has the leadership skills combined with the industry and operational experience to lead Compass to continued future success. He also benefits from the support of a very strong senior management team and together they will continue to build on the Group s strong track record under Richard s tenure. The Board looks forward to working with Dominic in his new role. SUMMARY AND OUTLOOK Compass had another strong year. North America continues to deliver excellent growth, we are continuing to make progress in Europe and in Rest of World, with trends in our commodity related business improving. We continue to drive operating efficiencies around the business which, combined with the end of the restructuring in our Offshore & Remote business, resulted in margin improvement of 20 basis points in the period. Given our excellent cash generation and the strength of the business, this year we returned 1.6 billion to shareholders via ordinary and special dividends and share buybacks. This reflects our commitment to return surplus cash to shareholders whilst maintaining an efficient balance sheet. POSITION IN FTSE 100 INDEX AS AT 30 SEPTEMBER (2016: 24) COMPASS SHARE PRICE PERFORMANCE VS FTSE 100 OVER LAST 3 YEARS (%) COMPASS SHARE PRICE PERFORMANCE VS FTSE 100 INDEX ( ) % Sept Our expectations for FY2018 are positive, with growth and margin improvement weighted to the second half. The pipeline of new contracts is encouraging and our focus on organic growth, efficiencies and cash gives us confidence in achieving another year of progress. In the longer term, we remain excited about the significant structural growth opportunities globally and the potential for further revenue growth, margin improvement, as well as continued returns to shareholders. Paul Walsh Chairman 21 November % 59% Last 12 months Last 24 months Last 36 months Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Compass FTSE 100 (rebased) 13

16 HOW WE CREATE VALUE Our business model in action ORGANIC REVENUE GROWTH OUR PEOPLE COMPETITIVE ADVANTAGE COST/OPERATING EFFICIENCIES Our business model begins with organic growth, which we drive by sectorising and sub-sectorising our business. This approach differentiates us, and allows us to get close to our customers and create bespoke and innovative solutions. Organic growth is occasionally supplemented by small and medium sized acquisitions that add capability or scale in our existing markets. We focus on operational execution and generate efficiencies by optimising our supply chain and diligently managing our food and labour costs. These efficiencies enable us to reinvest in the significant growth opportunities around the Group and to improve margins. Our organic revenue growth, the scale it creates and our focus on cost and efficiencies give us a competitive advantage. We can provide our clients and consumers the best value in terms of quality and cost and this, combined with sectorisation, helps drive long term sustainable organic revenue growth. At the core lie our people. Our aim is to nurture an engaged and highly capable workforce to win new business, manage our units efficiently and effectively, and deliver the healthiest, most innovative food solutions in a way that provides an exceptional experience to our clients and consumers. Our values Our values set out the things we collectively believe in. They guide the way we conduct our business and the way we behave. OPENNESS, TRUST AND INTEGRITY We set the highest ethical and professional standards at all times. We want all our relationships to be based on honesty, respect, fairness and a commitment to open dialogue and transparency. 14

17 Our strategy STRATEGIC REPORT We have a disciplined approach to long term growth and remain focused on delivering shareholder value. Our priorities 1. FOCUS ON FOOD 2. INCREMENTAL APPROACH TO SUPPORT SERVICES Food is our focus and our core competence. We take a pragmatic and incremental approach to other support services developing strategies on a country by country basis. How we drive growth 3. PRIORITISE ORGANIC GROWTH 4. SELECT BOLT-ON ACQUISITIONS Our preference is to grow organically given that it yields the highest returns and leverages the significant structural growth opportunity in the global food services market. However, we also seek to invest in small to medium sized acquisitions, but only if they are attractive targets that have the right cultural fit and further strengthen our organic growth capabilities. How we deliver for our clients 5. BEST-IN-CLASS EXECUTION We are committed to providing the best quality and value to our clients with best-in-class execution. We have increased our focus on innovation in our core food business to bring more variety and excitement to our offer as well as to improve our operations. PASSION FOR QUALITY We are passionate about delivering superior food and service and take pride in achieving this. We look to replicate success, learn from mistakes and develop the ideas, innovation and practices that will help us improve and lead our market. WIN THROUGH TEAMWORK We encourage individual ownership, but work as a team. We value the expertise, individuality and contribution of all colleagues, working in support of each other and readily sharing good practice, in pursuit of shared goals. RESPONSIBILITY We take responsibility for our actions, individually and as a Group. Every day, everywhere we look to make a positive contribution to the health and wellbeing of our customers, the communities we work in and the world we live in. CAN-DO SAFELY We take a positive and commercially aware can-do approach to the opportunities and challenges we face; we always put safety first in everything we do. 15

18 HOW WE CREATE VALUE CONTINUED Long term stakeholder value Our model for creating value has remained unchanged for years. Its longevity is down to its simplicity and proven success. We prioritise organic growth and concentrate resources on driving new business and retention (see MAP 1 below) and consumer sales (MAP 2). We focus relentlessly on costs: this includes managing the cost of food (MAP 3), in unit labour costs and overheads (MAP 4) and what we term above unit overheads (MAP 5). In large markets our size and scale enable us to have a lower food cost structure and to make better use of overheads. Efficiency and effectiveness are key to improving margins. This focus on organic revenue growth and margins helps grow our earnings and cash flow. Our priorities for cash are clear and simple. We invest to support organic revenue growth of 4-6% and to generate further efficiencies to modestly improve margins. Capital expenditure tends to be 2.5-3% of sales. We invest in bolt-on acquisitions that add capability or scale in an existing market and whose returns exceed the cost of capital by year two. Having invested to support and maintain the long term growth prospects of the business, we reward our shareholders with a dividend which grows in line with constant currency earnings. Any surplus capital that is not reinvested in the business we return to shareholders via share buybacks or special dividends to maintain net debt/ebitda at 1.5x. We have a community of stakeholders that includes clients, consumers, employees and shareholders as well as NGOs and government agencies. All have an interest in our success. And because their opinions and actions can impact our ability to execute our strategy and conduct our business, we engage with them, taking into account their feedback and incorporating it, to the extent we can, into what we do. INVESTMENT Capex 2.5-3% of sales Bolt-on M&A HOW WE CREATE VALUE ORGANIC REVENUE GROWTH in the range of 4 6% 1 & 2 MARGINS opportunities remain to modestly improve margins 3, 4 & 5 We use the Management and Performance (MAP) framework across the business. MAP 1: CLIENT SALES AND MARKETING MAP 1 is about winning new business and retaining our existing clients. We invest in sales and retention and are increasingly sectorising and sub-sectorising the business around the world to allow us to get closer to our customers. This approach allows us to develop bespoke offers that best meet our clients needs. MAP 2: CONSUMER SALES AND MARKETING Like for like revenue consists of both volume and price. It is heavily influenced both by the number of people at a client s site and by macroeconomic conditions. We are making good progress with intelligent marketing programmes and training schemes as we work hard to attract and satisfy our customer base with strong consumer propositions. MAP 3: COST OF FOOD Food makes up around one third of our costs. In addition to the benefits of our scale in food procurement, we are able to manage food costs through careful menu planning and by rationalising the number of products we buy and the suppliers we buy them from. MAP 4: IN UNIT COSTS In unit costs are made up predominantly of labour. We focus on getting the right people in the right place at the right time. By using labour scheduling techniques and improving productivity, we are able to deliver the optimum level of service in the most efficient way. MAP 5: ABOVE UNIT OVERHEADS Having reduced costs considerably when MAP was first introduced in 2006 by creating a simpler organisational model with fewer layers of management and less bureaucracy, we now strive to leverage those gains by maintaining overheads low whilst we continue to grow revenue. FREE CASH FLOW net debt/ebitda 1.5x SHAREHOLDER RETURNS ordinary and special dividends and share buybacks 16

19 WHO WE CREATE VALUE FOR STRATEGIC REPORT CLIENTS AND CONSUMERS We are a B2B (business-to-business) organisation and our clients range from large corporations and hospitals to schools, universities and sports arenas. However, our food is consumed by the employees, students, patients and sports fans that come to our restaurants and cafés, so there is also a B2C (business-to-consumer) aspect to our business. Across this extraordinarily diverse base, we are conscious of the need to offer all of our clients value in terms of cost, quality, health and wellness and innovation. We work closely with clients and consumers to promote and drive a nutritional health and EMPLOYEES Compass is a people-powered business. Our 550,000+ employees are fundamental to delivering high quality food and service and maintaining our reputation and we are proud to have been included in the Forbes Global 2000 World s Best Employer list for We are committed to ensuring their safety as well as promoting diversity and inclusion and respecting human rights. We support the United Nations SDG Goal 5, to achieve gender equality and empower all women and girls, and SDG Goal 8, to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. All our sites work with local communities to offer fair employment and ensure that opportunities for internal promotion are open to all. We conduct regular employee engagement surveys that follow a similar format to allow comparison between different markets. They also include specific INVESTORS Open and proactive engagement is our way of building and maintaining relationships with the investment community. We aim to provide fair, balanced and understandable information about our strategy, operations, risks and opportunities. Within this framework we promote the links wellness agenda that suits the needs of their specific organisation and paves the way for healthier, more balanced lifestyles. We are also working towards the United Nations Sustainable Development Goal (SDG) 3: to ensure healthy lives and promote wellbeing for all at all ages. In 2010 our target was that, by 2016, 100% of our units would provide Balanced Choices or similar healthy eating programmes. We did not fully achieve that target, but we see year-on-year improvement in our performance (69% in 2017 vs 67% in 2016) and will continue to work towards achieving this through questions to allow for local and cultural priorities. The results of these surveys form the basis of tailored action plans to address the issues raised. Women make up 55% of our global workforce and 28% of our global leadership team. We are resolved to empower all our female employees as we know this leads to increased productivity, better organisational effectiveness and high levels of customer satisfaction. SUPPLIERS Each year we spend around 6 billion on food. We collaborate with our partners throughout the entire supply chain to deliver sustainable, scalable and secure solutions for food and its production. We interact with our suppliers through one-on-one meetings, field and factory visits, and third party supplier audits, to ensure that we source our food and non-food products in a transparent and sustainable manner. between sustainable operations and long term financial success. We engage with the investment community in various ways including presentations, one-to-one and group meetings, as well as site visits. NGOS, GLOBAL PARTNERSHIPS & INITIATIVES, LOCAL COMMUNITIES As a global business, we recognise the critical importance of engaging with our clients, suppliers and other stakeholders such as NGOs, to improve the positive contribution that we can make through global partnerships and initiatives that help bring about change, more sustainable business practices and scale. We have adopted the United Nations SDGs as a helpful framework to encourage such multistakeholder partnerships (SDG17) and developed a number of mutually beneficial collaborations. These include our partnership with Compassion in World Farming and other farm animal welfare bodies, which has brought about third party insights and expertise that have helped us to develop a policy and framework designed to deliver enhanced farm animal welfare standards throughout our global supply chain. Working together, we have identified opportunities to engage with our suppliers, be more ambitious in our sourcing commitments and achieve continuous improvement. One significant outcome from our engagement with these partners has been a global commitment to source only cage free eggs by 2025; this includes shell eggs and liquid egg. 17

20 CHIEF EXECUTIVE S REVIEW Delivering continued growth Compass had another strong year. North America continues to deliver excellent growth, we are continuing to make progress in Europe and in Rest of World, with trends in our commodity related business improving PERFORMANCE Revenue for the Group grew by 4.0% on an organic basis. New business wins were 8.7% driven by strong MAP 1 (client sales and marketing) performance in all regions, our retention rate was 94.3% as a result of our ongoing focus and investment, and like for like revenue grew by 1.0% reflecting sensible price increases partially offset by weak volumes in our commodity related business. On a statutory basis, revenue grew by 15.1%, of which 11.3% was the benefit of currency translation. Underlying operating profit increased by 5.6% on a constant currency basis. Operating profit margin increased by 20 basis points as we continue to drive efficiencies across the business using our Management and Performance (MAP) framework and foreign exchange. We also benefitted from the end of the restructuring plan in the Emerging Markets and Offshore & Remote last year and the absence of these costs this year. We have maintained our focus on MAP 3 (cost of food) with initiatives such as menu planning and supplier rationalisation, as well as continually optimising MAP 4 (labour and in unit costs) and MAP 5 (above unit overheads). These efficiencies combined with modest pricing increases enabled us to offset inflation pressures and reinvest to support the exciting growth opportunities we see around the world. On a statutory basis, operating profit grew by 18.2%, of which 11.3% was the benefit of currency translation. RETURNS TO SHAREHOLDERS Returns to shareholders continue to be an integral part of our business model. As a result of continued strong cash flow generation, and limited M&A this year, we paid a special dividend of 1 billion (61.0 pence per share) in July and declared an annual dividend of 33.5 pence per share (up 5.7%). We have also bought back 19 million of shares. Our leverage policy remains unchanged: to maintain strong investment grade credit ratings, returning any surplus cash to shareholders to target net debt to EBITDA of around 1.5x. GROUP STRATEGY Food is our focus and our core competence. The food service market is estimated to be more than 200 billion; with only around 50% of the market currently outsourced, it represents a significant structural growth opportunity. We believe the benefits of outsourcing become further apparent as economic conditions and regulatory changes put further pressure on organisations budgets. As one of the largest providers in all of our sectors, we are well placed to benefit from these trends. Our approach to support services is low risk and incremental, with strategies developed on a country by country basis. Our largest sector in this market is Defence, Offshore & Remote, where the model is almost universally multi service. In addition, we have an excellent support services business in North America and some operations in other parts of the world. This is a complex segment and there are significant differences in client buying behaviour across countries, sectors and sub-sectors. 18

21 STRATEGIC REPORT GROUP S GEOGRAPHIC SPREAD We have a truly international business, with operations in around 50 countries. North America (58% of Group revenue) is likely to remain the principal growth engine for the Group. We have a market leading business, which delivers high levels of growth by combining the cost advantage of our scale with a segmented client facing sector approach. The outsourcing culture is vibrant and the addressable market is significant. The fundamentals of our businesses in Europe (26% of Group revenue) are good. Our investment in MAP 1 sales and retention has returned the region to growth and with the creation of sub-regional business units, we continue to see opportunities to deliver efficiencies and make our operations more competitive. Rest of World (16% of Group revenue) offers excellent long term growth potential. Our largest markets are Australia, Japan and Brazil, whilst India and China have strong long term growth potential. Lower commodity prices and a weak macroeconomic backdrop have impacted our Offshore & Remote business and some of our emerging markets, but trends are beginning to improve. We have concluded a restructuring of our business to adapt to the changing market environment and remain excited about the attractive long term growth prospects of the region. COMPASS COMPETITIVE ADVANTAGES SECTORISED APPROACH The global food services market is very large and disparate and we find that segmenting the market into various sectors and sub-sectors using our portfolio of B2B brands allows us to operate more effectively. It allows us to be closer to our clients and consumers and better understand their different needs. In this way, we can create innovative, bespoke offers that meet their requirements, and in doing so truly differentiate ourselves. SCALE As we continue to grow, our scale enables us to achieve our goal of being the lowest cost, most efficient provider of food and support services. Scale is a benefit in terms of food procurement, labour management and back office costs. It underpins our competitiveness and enables us to deliver sustainable growth over time. MAP CULTURE We use the Management and Performance (MAP) framework across the business. All our employees use this simple framework to drive performance across the Group. It helps us focus on a common set of business drivers, whether it is winning new business in the right sector on the right terms (MAP 1), increasing our consumer participation and spend (MAP 2), reducing our food costs (MAP 3), our labour costs (MAP 4) or our overhead (MAP 5). USES OF CASH AND BALANCE SHEET PRIORITIES The Group s cash flow generation remains excellent and it will continue to be a key part of the business model. Our priorities for how we use our cash remain unchanged. We will continue to: (i) invest in the business to support organic growth where we see opportunities with good returns; (ii) pursue M&A opportunities; our preference is for small to medium sized infill acquisitions, where we look for returns greater than our cost of capital by the end of year two; (iii) grow the dividend in line with underlying constant currency earnings per share; and (iv) maintain strong investment grade credit ratings returning any surplus cash to shareholders to target net debt to EBITDA of around 1.5x SUMMARY Compass had another strong year. North America continues to deliver excellent growth, we are continuing to make progress in Europe and in Rest of World, with trends in our commodity related business improving. We continue to drive operating efficiencies around the business which, combined with the end of the restructuring in our Offshore & Remote business, resulted in margin improvement of 20 basis points in the period. Given our excellent cash generation and the strength of the business, this year we returned 1.6 billion to shareholders via ordinary and special dividends and share buybacks. This reflects our commitment to return surplus cash to shareholders whilst maintaining an efficient balance sheet OUTLOOK Our expectations for FY2018 are positive, with growth and margin improvement weighted to the second half. The pipeline of new contracts is encouraging and our focus on organic growth, efficiencies and cash gives us confidence in achieving another year of progress. In the longer term, we remain excited about the significant structural growth opportunities globally and the potential for further revenue growth, margin improvement, as well as continued returns to shareholders. Finally, I d like to thank all my colleagues within Compass. The last 11 years have been very rewarding. Together, we have built the foundations of a truly great company, and I am confident that Dominic will take Compass onto continued future success. Richard Cousins Group Chief Executive 21 November

22 REGIONAL REVIEW North America Key highlights UNDERLYING REVENUE 13,322m (2016: 11,198m) ORGANIC REVENUE GROWTH +7.1% (2016: +8.1%) UNDERLYING OPERATING PROFIT 1,082m (2016: 908m) UNDERLYING REVENUE BY SECTOR (%) Business & Industry... 31% 2 Healthcare & Seniors... 29% 3 Education... 23% 1 4 Sports & Leisure... 15% 5 Defence, Offshore & Remote... 2% 2 UNDERLYING OPERATING MARGIN 8.1% (2016: 8.1%) GROUP UNDERLYING REVENUE CONTRIBUTION 58.3% (2016: 56.3%) We have had another strong performance from our North American business with organic revenue growth of 7.1%. This was driven by good new business wins and an excellent retention rate at 96%. Like for like revenues were positive across the business reflecting modest pricing and flat volumes with the exception of the Offshore & Remote sector which remains challenging. Solid organic growth in our Business & Industry sector was driven by strong new business and excellent retention. New contract wins include Costco as well as additional business with Qualcomm Inc. In the Healthcare & Seniors sector, organic revenue growth was driven by double digit new business and some like for like growth. New contract wins include Mayo Foundation, University of Cincinnati Health System, Cleveland Clinic and Arkansas Children s Hospital. Excellent retention in our Education sector has contributed to the delivery of solid organic revenue growth along with contract wins including the University of Houston and Vassar College. Our Sports & Leisure business had excellent retention of nearly 100%. Increased participation at some sporting events, with the benefit of additional playoffs, contributed to strong organic revenue growth. Contract wins include the George R. Brown Convention Center, Vivint Smart Home Arena, home of the Utah Jazz, and Smith s Ballpark, home of the Salt Lake Bees. Offshore & Remote is small at circa 2% of revenues. It continued to decline in the year, with the second half of the year worsening due to client site closures, the impact of which will continue in Volume and pricing pressures also remain. However, some new contracts continue to be won including additional projects for Noble Drilling and Forbes Bros. Ltd. Underlying operating profit of 1,082 million increased by 6.9% ( 70 million) on a constant currency basis. The benefits generated by ongoing efficiency initiatives across MAPs 3 and 4, along with sensible price increases and leverage of the overhead base, were largely offset by the continued weakness in our Offshore & Remote business and above average labour inflation. As a result, the underlying operating margin for the year was unchanged. REGIONAL FINANCIAL SUMMARY UNDERLYING REPORTED RATES CHANGE CONSTANT CURRENCY ORGANIC Revenue 13,322m 11,198m 19.0% 6.7% 7.1% Operating profit 1,082m 908m 19.2% 6.9% 7.4% Operating margin 8.1% 8.1% Region as a % of Group revenue 58.3% 56.3% 20

23 REDUCING FOOD WASTE Since 2014, the Imperfectly Delicious Produce programme run by our US business has used over 4.5 million lbs of imperfect fruit and vegetables that would otherwise have rotted in fields or been sent to composting or landfill for simply not meeting an artificial standard of attractiveness. Find out more at 21

24 REGIONAL REVIEW CONTINUED Europe Key highlights UNDERLYING REVENUE 5,911m (2016: 5,458m) ORGANIC REVENUE GROWTH +1.6% (2016: 2.8%) UNDERLYING OPERATING PROFIT 428m (2016: 394m) UNDERLYING OPERATING MARGIN 7.2% (2016: 7.2%) GROUP UNDERLYING REVENUE CONTRIBUTION 25.9% (2016: 27.5%) Organic revenue growth for the region was 1.6% with growth improving as the year progressed. The performance was driven by good levels of new business in the UK and Turkey, partly offset by dull trading on the Continent, principally in France and Germany. Like for like revenues benefitted from some pricing but continued to be impacted by poor trading conditions in our North Sea oil & gas business. Our improving new business performance reflects good levels of wins in the UK, Turkey and Iberia. New contracts include Colegios Mayores UCM in Spain and Oxford University in the UK. Contract extensions include Peugeot in France and Slovakia, Rabobank in the Netherlands, Premier Inn and Wimbledon both in the UK and Mercedes in Turkey. Underlying operating profit grew by 1.2% ( 5 million) on a constant currency basis. The ongoing focus on driving operational efficiencies and sensible pricing allowed us to support the higher levels of growth, and associated mobilisation costs. This was offset by lower volumes in the oil & gas business, and inflationary pressures, particularly unrecovered labour cost inflation in our UK support services business. As a result of our actions, we have maintained the underlying operating margin at 7.2%. UNDERLYING REVENUE BY SECTOR (%) 1 Business & Industry... 57% Healthcare & Seniors... 15% Education... 14% Sports & Leisure... 8% Defence, Offshore & Remote... 6% REGIONAL FINANCIAL SUMMARY UNDERLYING REPORTED RATES CHANGE CONSTANT CURRENCY ORGANIC Revenue 5,911m 5,458m 8.3% 1.5% 1.6% Operating profit 428m 394m 8.6% 1.2% 1.2% Operating margin 7.2% 7.2% Region as a % of Group revenue 25.9% 27.5% 22

25 WOMEN IN OUR BUSINESS Our businesses in the UK and Turkey have set up Women in Food programmes to tackle the shortage of female chefs. By 2020, we expect that 50% of the chefs in our UK workplace will be female and in Turkey, the number of female colleagues in the workplace has already doubled over the last five years. Find out more at 23

26 REGIONAL REVIEW CONTINUED Rest of World Key highlights UNDERLYING REVENUE 3,619m (2016: 3,215m) ORGANIC REVENUE GROWTH -2.5% (2016: -1.2%) UNDERLYING OPERATING PROFIT 248m (2016: 218m) UNDERLYING REVENUE BY SECTOR (%) UNDERLYING OPERATING MARGIN 6.9% (2016: 6.8%) GROUP UNDERLYING REVENUE CONTRIBUTION 15.8% (2016: 16.2%) 1 Business & Industry... 38% 2 Healthcare & Seniors... 15% 3 Education... 5% 4 Sports & Leisure... 9% 5 Defence, Offshore & Remote... 33% Organic revenue in our Rest of World region declined by 2.5%. Excluding the Offshore & Remote business, organic revenue grew by 3.0%. Offshore & Remote contracted by 14%, reflecting the continuing impact of the transition of construction contracts to production in Australia and continued weakness in our commodity related business around the region. However, the rate of decline has slowed in recent months and we expect this trend to continue into As expected, our Australian Offshore & Remote business saw a slowdown in the rate of organic revenue decline to 14% in the second half of the year. Contracts continue to move from their construction to production phase and the ongoing pressures from lower volumes remain, however the number of site closures have reduced. Similar challenges continue to be seen in our non- Australian Offshore & Remote business, although trends are starting to improve. We continue to win and retain contracts at the RAPID site in Malaysia and Centinela in Chile. The non-offshore & Remote business continues to perform reasonably well across the region with several countries enjoying double digit growth, including India, China and some of our Spanish speaking Latin American businesses. Although the rate of decline has marginally slowed, Brazil remains challenging. New business wins include the Calvary Bruce Public Hospital in Australia, Fiat in Brazil, Apple Shenzhen in China, J-Village in Japan and Mercedes Benz in India. We continue to retain contracts, including the Kagoshima University Hospital in Japan, New York University Abu Dhabi, Roche in China and Prodeco Food in Colombia. Overall, underlying operating profit declined by 2.0% ( 5 million) on a constant currency basis. The underlying margin benefitted more than expected from last year s restructuring allowing for 10 basis points of margin improvement to 6.9%. REGIONAL FINANCIAL SUMMARY UNDERLYING REPORTED RATES CHANGE CONSTANT CURRENCY ORGANIC Revenue 3,619m 3,215m 12.6% (2.5)% (2.5)% Operating profit 248m 218m 13.8% (2.0)% (2.0)% Operating margin 6.9% 6.8% 10bps Region as a % of Group revenue 15.8% 16.2% 24

27 RECOGNISING DIVERSITY ESS has received the 2016 Workforce Innovation Award from the Australian Mines and Metals Association (AMMA) in recognition of creative and strategic efforts to overcome workforce challenges and deliver quality outcomes for communities and individuals in the resource industry. Find out more at 25

28 KEY PERFORMANCE INDICATORS Measuring progress We track our performance against a mix of financial and non-financial measures, which we believe best reflect our strategic priorities of growth, efficiency and shareholder returns underpinned by safe and responsible working practices. KPI METRICS Our strategic priorities are driven by our goal to deliver shareholder value and we use a number of financial KPIs to measure our progress. Growing the business and driving ongoing efficiencies are integral to our strategy. The importance of safety in everything we do is demonstrated by three non-financial performance indicators that we use across our global business. STRATEGIC FINANCIAL ORGANIC REVENUE GROWTH Organic revenue growth compares the underlying revenue delivered from continuing operations in the current year with that from the prior year, adjusting for the impact of acquisitions, disposals and exchange rate movements. WHY WE MEASURE Our organic revenue performance embodies our success in growing and retaining our customer base, as well as our ability to drive volumes in our existing business and maintain appropriate pricing levels in light of input cost inflation. 4.0% FINANCIAL RETURN ON CAPITAL EMPLOYED (ROCE) ROCE divides the net operating profit after tax (NOPAT) by the 12 month average capital employed. NOPAT is calculated as underlying operating profit less operating profit of non-controlling interests, net of income tax at the underlying rate of the year. WHY WE MEASURE ROCE demonstrates how we have delivered against the various investments we make in the business, be it operational expenditure, capital expenditure or infill acquisitions. 20.3% UNDERLYING OPERATING MARGIN Underlying operating margin divides the underlying operating profit before share of profit of associates by the underlying revenue. WHY WE MEASURE The operating profit margin is an important measure of the efficiency of our operations in delivering great food and support services to our clients and consumers NON-FINANCIAL 7.4% -26% HEALTH AND SAFETY LOST TIME INCIDENT FREQUENCY RATE Cases where one of our colleagues is away from work for one or more shifts as a result of a work related injury or illness. WHY WE MEASURE A reduction in lost time incidents is an important measure of the effectiveness of our Safety First culture. It also lowers rates of absenteeism and costs associated with work related injuries and illnesses. since

29 STRATEGIC REPORT The Group KPIs should be read in conjunction with the Strategy and Risk sections. See pages 14 to 17 and 34 to 36 respectively UNDERLYING BASIC EARNINGS PER SHARE Underlying basic earnings per share divides the underlying attributable profit by the weighted average number of shares in issue during the year. WHY WE MEASURE Earnings per share measures the performance of the Group in delivering value to shareholders. 72.3p UNDERLYING FREE CASH FLOW Measures cash generated by continuing operations, after working capital, capital expenditure, interest and tax but before acquisitions, disposals, dividends and share buybacks. WHY WE MEASURE Measures the success of the Group in turning profit into cash through the careful management of working capital and capital expenditure. Maintaining a high level of cash generation supports our progressive dividend policy. 974m FOOD SAFETY FOOD SAFETY INCIDENT RATE Cases of substantiated food safety incidents, including food borne illnesses. -14% since 2014 ENVIRONMENT GHG INTENSITY RATIO GHG intensity ratio relating to the top 20 countries, which represent 94% of total Group revenue. -18% since 2014 WHY WE MEASURE The Food Safety Incident Rate is a helpful measure of our ability to provide food that is safe and of the right quality to our consumers globally. WHY WE MEASURE Since 2008, we have been focused on lowering our carbon emissions to reduce our impact on the environment and increase operational efficiency. We measure Greenhouse Gas emissions to assess our progress

30 BUSINESS REVIEW Strong performance 2017 has been another strong year with good organic revenue growth of 4.0%, underlying margin delivery of 7.4% and an increase in free cash flow of 7.3%. ORGANIC REVENUE GROWTH 4.0% UNDERLYING MARGIN DELIVERY 7.4% INCREASE IN FREE CASH FLOW 7.3% FINANCIAL SUMMARY INCREASE Revenue Underlying at constant currency 22,852 22, % Underlying at reported rates 22,852 19, % Statutory 22,568 19, % Organic growth 4.0% 5.0% Total operating profit Underlying at constant currency 1,705 1, % Underlying at reported rates 1,705 1, % Statutory 1,665 1, % Operating margin Underlying at reported rates 7.4% 7.2% 20 bps Statutory 7.4% 7.2% 20 bps Profit before tax Underlying at constant currency 1,591 1, % Underlying at reported rates 1,591 1, % Statutory 1,560 1, % Basic earnings per share Underlying at constant currency 72.3p 68.4p 5.7% Underlying at reported rates 72.3p 61.1p 18.3% Statutory 71.3p 60.4p 18.0% Free cash flow Underlying at reported rates % Full year dividend per ordinary share 33.5p 31.7p 5.7% 28

31 STRATEGIC REPORT SEGMENTAL PERFORMANCE UNDERLYING REVENUE 1 UNDERLYING REVENUE GROWTH REPORTED RATES CONSTANT CURRENCY North America 13,322 11, % 6.7% 7.1% Europe 5,911 5, % 1.5% 1.6% Rest of World 3,619 3, % (2.5)% (2.5)% Total 22,852 19, % 3.8% 4.0% ORGANIC UNDERLYING OPERATING PROFIT 1 UNDERLYING OPERATING MARGIN 1 North America 1, % 8.1% Europe % 7.2% Rest of World % 6.8% Unallocated overheads (70) (65) Total before EM & OR restructuring 1,688 1, % 7.3% EM & OR restructuring (25) Total before associates 1,688 1, % 7.2% Associates Total 1,705 1, Definitions of underlying measures of performance can be found in the glossary on page STATUTORY AND UNDERLYING RESULTS STATUTORY ADJUSTMENTS UNDERLYING STATUTORY ADJUSTMENTS 2017 % UNDERLYING 2016 % UNDERLYING CONSTANT CURRENCY Revenue 22, ,852 19, ,871 22,017 Operating profit 1, ,705 1, ,445 1,614 Other gains/(losses) 1 (1) Net finance costs (105) (9) (114) (89) (12) (101) (110) Profit before tax 1, ,591 1, ,344 1,504 Tax (389) (15) (404) (319) (11) (330) (369) Profit after tax 1, ,187 1, ,014 1,135 Non-controlling interest (10) (10) (10) (10) (10) Attributable profit 1, , ,004 1,125 Average number of shares (millions) 1,628 1,628 1,643 1,643 1,643 Basic earnings per share (pence) 71.3p 1.0p 72.3p 60.4p 0.7p 61.1p 68.4p EBITDA 2,188 1,840 n/a Gross capex n/a Free cash flow n/a Further details of the adjustments can be found in the consolidated income statement, note 1 segmental reporting and note 32 statutory and underlying results. 29

32 BUSINESS REVIEW CONTINUED STATUTORY RESULTS On a statutory basis, revenue was 22,568 million (2016: 19,605 million), growth of 15.1%, which included 11.3% of foreign currency translation benefit. Operating profit was 1,665 million (2016: 1,409 million), an increase of 18.2% over the prior year, which included 11.3% of foreign currency translation benefit. Operating margin was 7.4% (2016: 7.2%). Net finance costs were 105 million (2016: 89 million). Profit before tax was 1,560 million (2016: 1,321 million) giving rise to an income tax expense of 389 million (2016: 319 million), equivalent to an effective tax rate of 24.9% (2016: 24.1%). Basic earnings per share were 71.3 pence (2016: 60.4 pence), an increase of 18.0%, of which 11.3% relates to foreign currency translation. UNDERLYING RESULTS Throughout this Annual Report, and consistent with prior years, underlying and other alternative performance measures are used to describe the Group s performance. These are not recognised under International Financial Reporting Standards (IFRS) or other generally accepted accounting principles (GAAP). The Executive Board of the Group manages and assesses the performance of the business on these measures and believes they are more representative of ongoing trading, facilitate meaningful year on year comparisons, and hence provide more useful information to shareholders. All underlying measures are defined in the glossary of terms on page 196. A summary of the adjustments from statutory results to underlying results is shown in note 32 on page 161 and further detailed in the consolidated income statement page 107, reconciliation of free cash flow page 112, note 1 segmental reporting pages 120 to 123 and note 33 organic revenue and organic profit page 162. UNDERLYING REVENUE On an organic basis, revenue increased by 4.0%. New business wins were 8.7% driven by a strong performance in most countries. Our retention rate was 94.3% as a result of our ongoing focus and investment. Like for like revenue growth was 1.0%, reflecting sensible price increases partly offset by weak volumes in our commodity related business. UNDERLYING OPERATING PROFIT Underlying operating profit was 1,705 million (2016: 1,445 million), an increase of 18.0%. If we restate 2016 s profit at the 2017 average exchange rates, it would have increased by 169 million to 1,614 million. On a constant currency basis, underlying operating profit has therefore increased by 91 million, or 5.6%. UNDERLYING OPERATING MARGIN The underlying operating margin increased by 20 basis points as we continue to drive efficiencies across the business, benefitted from the end of the Emerging Markets and Offshore & Remote restructuring and foreign exchange. These efficiencies, combined with modest pricing increases, enabled us to offset inflation pressures and reinvest to support the exciting growth opportunities we see around the world. UNDERLYING FINANCE COSTS The underlying net finance cost increased to 114 million (2016: 101 million) as a result of sterling weakness and the additional interest on debt to fund the 1 billion special dividend. This equates to an effective interest rate of just under 3% on gross debt. For 2018, we expect an underlying net finance cost of around 120 million. UNDERLYING TAX CHARGE On an underlying basis, the tax charge was 404 million (2016: 330 million), equivalent to an effective tax rate of 25.4% (2016: 24.5%). This increase is a consequence of both the changing regulatory environment affecting all multinational groups specifically the enactment into law in the UK of the OECD BEPS legislation, and the impact of exchange rate movements. Our current expectations for the 2018 tax rate are to be around 1.0% higher than As previously noted, we are likely to see a continuing period of significant uncertainty in the international corporate tax environment. UNDERLYING BASIC EARNINGS PER SHARE On a constant currency basis, the underlying basic earnings per share were 72.3 pence (2016: 68.4 pence), an increase of 5.7%. DIVIDENDS Our dividend policy is to grow the dividend in line with growth in underlying constant currency earnings per share. In determining the level of dividend in any year in accordance with the policy, the Board also considers a number of other factors that influence the proposed dividend, which include but are not limited to: the level of available distributable reserves in the Parent Company; future cash commitments and investment needs to sustain the long-term growth prospects of the business; potential strategic opportunities; and the level of dividend cover. Further surpluses, after considering the matters set out above, are distributed to shareholders over time by way of special dividend payments, share repurchases or a combination of both. Compass Group PLC, the Parent Company of the Group, is a non-trading investment holding company which derives its distributable reserves from dividends paid by subsidiary companies. The level of distributable reserves in the Parent Company is reviewed annually and the Group aims to maintain distributable reserves that provide adequate cover for dividend payments. The distributable reserves of the Parent Company include the balance on the profit and loss account reserve, which at 30 September 2017 amounted to 1,127 million. The Group is currently in a strong position to continue to fund its dividend which continues to be well covered by cash generated by the business. Details on the Group s continuing viability and going concern can be found on page 33. The ability of the Board to maintain its future dividend policy will be influenced by a number of the principal risks identified on pages 34 to 36 that could adversely impact the performance of the Group although we believe we have the ability to mitigate those risks as outlined on pages 34 to 36. It is proposed that a final dividend of 22.3 pence per share be paid on 26 February 2018 to shareholders 30

33 STRATEGIC REPORT on the register on 19 January This will result in a total dividend for the year of 33.5 pence per share (2016: 31.7 pence per share), a year on year increase of 5.7%. The dividend is covered 2.2 times on an underlying earnings basis and 1.8 times on a cash basis. SPECIAL DIVIDEND On 7 June 2017, shareholder approval was given at a General Meeting for a return of 61.0 pence per share to shareholders, which was equivalent to 1 billion in aggregate and was accompanied by a Share Capital Consolidation. The special dividend was paid on 17 July 2017 to shareholders on the register on 26 June PURCHASE OF OWN SHARES During the year, the Group purchased shares for a consideration of 19 million (2016: 100 million). SHAREHOLDER RETURN The market price of the Group s ordinary shares at the close of the financial year was 1, pence per share (2016: 1, pence per share). FREE CASH FLOW Free cash flow totalled 974 million (2016: 899 million). In 2016, we made cash payments of 9 million related to the European exceptional programme. Adjusting for this, free cash flow on an underlying basis would have grown by 66 million or 7.3%. Free cash flow conversion was 57% (2016: 63%). Gross capital expenditure of 717 million (2016: 580 million), including assets purchased under finance leases of 2 million (2016: 2 million), is equivalent to 3.1% of underlying revenues (2016: 2.9% of underlying revenues). We continue to deliver strong returns on our capital expenditure across all regions. In 2018 we expect capital expenditure to be just over 3% of revenue, which includes an investment in a long term partnership with the LA Dodgers in the US. The working capital outflow, excluding provisions and pensions, was 62 million (2016: 12 million inflow). In 2018 we expect a small underlying outflow which will be offset by a positive inflow of around 70 million due to the timing of our payroll run in September. This payroll inflow is a reversal of the outflow which occurred in The 14 million outflow (2016: 39 million) in respect of post employment benefit obligations reflects the reduction in regular payments agreed with trustees of the UK defined benefit pension scheme as a result of the funding surplus following the triennial valuation in April We now continue to expect a total outflow for the Group of around 20 million per annum. The net interest outflow was 97 million (2016: 94 million). The underlying cash tax rate was in line with expectations at 21% (2016: 18%). ACQUISITION PAYMENTS The total cash spent on acquisitions in the year, net of cash acquired, was 96 million (2016: 180 million), comprising 72 million of infill acquisitions, 1 million of acquisition transaction costs net of cash acquired and 23 million of contingent consideration relating to prior years acquisitions. FINANCING MATURITY PROFILE OF PRINCIPAL BORROWINGS AS AT 30 SEPTEMBER 2017 () Bank 8% US$ Private Placement 36% Bond 42% Bond 14% 1. Based on borrowings and facilities in place as at 30 September 2017, maturing in the financial year ending 30 September. 2. The average life of the Group's principal borrowings is 5.6 years (2016: 5.0 years). 31

34 BUSINESS REVIEW CONTINUED DISPOSALS The Group received 19 million (2016: 2 million) in respect of the disposal of some non core businesses. POST EMPLOYMENT BENEFIT OBLIGATIONS The Group has continued to review and monitor its pension obligations throughout the period working closely with the trustees and members of all schemes around the Group to ensure proper and prudent assumptions are used and adequate provision and contributions are made. The Group s net pension surplus, calculated in accordance with IAS 19, for all Group defined benefit schemes was 28 million (2016: 21 million deficit). The total pensions charge for defined benefit contribution schemes in the year was 123 million (2016: 100 million) and 20 million (2016: 17 million) for defined benefit schemes. RETURN ON CAPITAL EMPLOYED Return on capital employed was 20.3% (2016: 19.4%) based on net operating profit after tax at the underlying effective tax rate of 25.4% (2016: 24.5%). The average capital employed was 6,218 million (2016: 5,565 million). On a constant currency basis, the increase in return on capital employed was 10 basis points. RELATED PARTY TRANSACTIONS Details of transactions with related parties are set out in note 29 of the consolidated financial statements. These transactions have not had, and are not expected to have, a material effect on the financial performance or position of the Group. FINANCIAL POSITION The ratio of net debt to market capitalisation of 25,035 million as at 30 September 2017 was 13.8% (2016: 12%). Net debt increased to 3,446 million (2016: 2,874 million). The ratio of net debt to underlying EBITDA was 1.6x, slightly above the target ratio due to the funding of the 1 billion special dividend. Our leverage policy is to maintain strong investment grade credit ratings, returning any surplus cash to shareholders to target net debt to underlying EBITDA of around 1.5x. The Group generated 974 million of free cash flow (2016: 899 million), including investing 683 million in net capital expenditure, and spent 77 million on acquisitions net of disposal proceeds. 347 million was paid in respect of the final dividend for the financial year 2016, 184 million was paid for the interim 2017 dividend, 1,003 million in relation to the special dividend and 19 million returned to shareholders through share buybacks. The remaining 84 million movement in net debt related predominantly to foreign currency translation. LIQUIDITY RISK The Group finances its borrowings from a number of sources including the bank, the public and the private placement markets. The Group has developed long term relationships with a number of financial counterparties with the balance sheet strength and credit quality to provide credit facilities as required. The Group seeks to avoid a concentration of debt maturities in any one period to spread its refinancing risk. The maturity profile of the Group s principal borrowings at 30 September 2017 shows that the average period to maturity is 5.6 years (2016: 5.0 years). The Group s undrawn committed bank facilities at 30 September 2017 were 1,387 million (2016: 1,000 million). FINANCIAL MANAGEMENT The Group continues to manage its interest rate and foreign currency exposure in accordance with the policies set out below. The Group s financial instruments comprise cash, borrowings, receivables and payables that are used to finance the Group s operations. The Group also uses derivatives, principally interest rate swaps, forward currency contracts and cross currency swaps, to manage interest rate and currency risks arising from the Group s operations. The Group does not trade in financial instruments. The Group s treasury policies are designed to mitigate the impact of fluctuations in interest rates and exchange rates and to manage the Group s financial risks. The Board approves any changes to the policies. These policies have not changed in the year. FOREIGN CURRENCY RISK The Group s policy is to match as far as possible its principal projected cash flows by currency to actual or effective borrowings in the same currency. As currency cash flows are generated, they are used to service and repay debt in the same currency. Where necessary, to implement this policy, forward currency contracts and cross currency swaps are taken out which, when applied to the actual currency borrowings, convert these to the required currency. The borrowings in each currency can give rise to foreign exchange differences on translation into sterling. Where the borrowings either are less than, or equate to, the net investment in overseas operations, these exchange rate movements are treated as movements on reserves and recorded in the consolidated statement of comprehensive income rather than in the income statement. Non-sterling earnings streams are translated at the average rate of exchange for the year. Fluctuations in exchange rates have given, and will continue to give, rise to translation differences. The Group is only partially protected from the impact of such differences through the matching of cash flows to currency borrowings. INTEREST RATE RISK As set out above, the Group has effective borrowings in a number of currencies and its policy is to ensure that, in the short term, it is not materially exposed to fluctuations in interest rates in its principal currencies. The Group implements this policy either by borrowing fixed rate debt or by using interest rate swaps so that the interest rates on at least 80% of the Group s projected debt are fixed for one year, reducing to 60% fixed for the second year and 40% fixed for the third year. GROUP TAX POLICY As a Group, we are committed to creating long term shareholder value through the responsible, sustainable and efficient delivery of our key business objectives. This will enable us to grow the business and make significant investments into the Group and its operations. 32

35 STRATEGIC REPORT We therefore adopt an approach to tax that supports this strategy and also balances the various interests of our stakeholders including shareholders, governments, employees and the communities in which we operate. Our aim is to pursue a principled and sustainable tax strategy that has strong commercial merit and is aligned with our business strategy. We believe this will enhance shareholder value whilst protecting Compass reputation. In doing so, we act in compliance with the relevant local and international laws and disclosure requirements, and we conduct an open and transparent relationship with the relevant tax authorities that fully complies with the Group s Code of Business Conduct and Code of Ethics. In an increasingly complex international environment, a degree of tax risk and uncertainty is, however, inevitable. We manage and control these risks in a proactive manner and in doing so, exercise our judgement and seek appropriate advice from relevant professional firms. Tax risks are assessed as part of the Group s formal governance process and are reviewed by the Board and the Audit Committee on a regular basis. RISKS AND UNCERTAINTIES The Board takes a proactive approach to risk management with the aim of protecting its employees and customers and safeguarding the interests of the Group, its shareholders, employees, clients, consumers and all other stakeholders. The principal risks and uncertainties that face the business and the activities the Group undertakes to mitigate these are set out on pages 34 to 36. GOING CONCERN The Group s business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review, as is the financial position of the Group, its cash flows, liquidity position, and borrowing facilities. In addition, note 17 includes the Group s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit risk and liquidity risk. The Group has considerable financial resources together with longer term contracts with a number of clients and suppliers across different geographic areas and industries. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the 12 months from the date of approval of this Annual Report. For this reason, they continue to adopt the going concern basis in preparing the financial statements. VIABILITY STATEMENT In accordance with provision C.2.2 of the UK Corporate Governance Code 2016, the directors have assessed the viability of the Group over a three year period, taking into account the Group s current position and the potential impact of the principal risks documented on pages 34 to 36 of the Annual Report. Based on this assessment, the directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 30 September The directors have determined that a three year period to 30 September 2020 is an appropriate period over which to provide its viability statement. This is the period reviewed by the Group Board in our strategic planning process and is also aligned to our typical contract length (three to five years). We believe that this presents the Board and readers of the Annual Report with a reasonable degree of confidence over this longer term outlook. In making this statement, the Board carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. The Board considers annually and on a rolling basis a three year, bottom up strategic plan. The output of this plan is used to perform central debt and headroom profile analysis, which includes a review of sensitivity to business as usual risks, such as profit growth and working capital variances and severe but plausible events. It also considers the ability of the Group to raise finance and deploy capital. The results take into account the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact or occurrence of the identified underlying risks. While the review has considered all the principal risks identified by the Group, the following were focused on for enhanced stress testing: health and safety, economic and political environment, and clients and consumers. The geographical and sector diversification of the Group s operations helps minimise the risk of serious business interruption or catastrophic damage to our reputation. Furthermore, our business model is structured so that the Group is not reliant on one particular group of clients or sector. Our largest client constitutes only 2% of Group revenue and our top 10 clients account for less than 9% of Group revenue. Also, our ability to flex our cost base protects our viability in the face of adverse economic conditions and/ or political uncertainty. While this review does not consider all of the risks that the Group may face, the directors consider that this stress testing based assessment of the Group s prospects is reasonable in the circumstances of the inherent uncertainty involved. Johnny Thomson Group Finance Director 21 November 2017 The Strategic Report, as set out on pages 1 to 41, has been approved by the Board. On behalf of the Board Mark White Group General Counsel and Company Secretary 21 November

36 RISK MANAGEMENT Identifying and managing risk The Board continues to take a proactive approach to recognising, assessing and mitigating risk with the aim of protecting its employees and consumers and safeguarding the interests of the Company and its shareholders in the constantly changing environment in which it operates. As set out in the Corporate Governance section within the Annual Report, the Group has policies and procedures in place to ensure that risks are properly identified, evaluated and managed at the appropriate level within the business. The identification of risks and opportunities, the development of action plans to manage the risks and maximise the opportunities, and the continual monitoring of progress against agreed key performance indicators (KPIs) are integral parts of the business process and core activities throughout the Group. The table on pages 35 and 36 sets out the principal risks and uncertainties facing the business at the date of this Report. These have been subject to robust assessment and review. They do not comprise all of the risks that the Group may face and are not listed in any order of priority. Additional risks and uncertainties not presently known to management, or deemed to be less material at the date of this Report, may also have an adverse effect on the Group. These include risks resulting from the UK s decision to leave the EU and the potential for US political reform which could adversely affect the risks noted under the economic and political environment section of the table on the following pages as well as affecting financial risks such as liquidity and credit. The Board views the potential impact of Brexit as an integral part of its principal risks rather than a stand-alone risk. However, there is still significant uncertainty about the withdrawal process, its timeframe, and the outcome of negotiations about future arrangements between the UK and the EU, and the period for which existing EU laws for member states will continue to apply to the UK. Therefore, although the risks related to Brexit have been discussed by the Board, it remains too early to properly understand the impact on the business whilst negotiations continue to take place. The Board will continue to assess the risk to the business as the Brexit process evolves. The Group has significant operations and a substantial employee base in the USA where the new administration has signalled broad policy changes. Some of these potential changes in policy are in respect of trade and tax, none of which are clear at this stage. We are closely monitoring developments from the new administration and will continue to assess the impact of any changes and the extent to which they will be enacted. In accordance with the provisions of the UK Corporate Governance Code, the Board has taken into consideration the principal risks in the context of determining whether to adopt the going concern basis of accounting and when assessing the prospects of the Company for the purpose of preparing the Viability Statement. The Going Concern and Viability Statement can be found on page 33 of the Strategic Report. The Group faces a number of operational risks on an ongoing basis such as litigation and financial (including liquidity and credit) risk and some wider risks, for example, environmental and reputational. Additionally, there are risks (such as those relating to the eurozone economy, pensions, and acquisitions and investments) which vary in importance depending on changing conditions. All risks disclosed in previous years can be found in the annual reports available on our website at We recognise that these risks remain important to the business and they are kept under review. However, we have focused the disclosures on pages 35 and 36 on those risks that are currently considered to be more significant to the Group. Risk Management should be read in conjunction with the Strategy and KPI sections. See pages 14 to 17 and 26 and 27 respectively 34

37 PRINCIPAL RISKS CHANGE IN RISK Increased risk Consistent risk RISKS DESCRIPTION EXAMPLES OF MITIGATION HEALTH AND SAFETY Health and safety CLIENTS AND CONSUMERS Client and consumer sales and retention Bidding Service delivery and contractual compliance Competition PEOPLE Recruitment Retention and motivation Health and safety is our number one operational priority. We are focused on protecting people s wellbeing, as well as avoiding serious business interruption and potential damage to our reputation. Compass feeds millions of consumers and employs thousands of people around the world every day. Therefore, setting the highest standards for food hygiene and safety is paramount. Our business relies on securing and retaining a diverse range of clients. Each year, the Group could bid for a large number of opportunities. The Group s operating companies contract with a large number of clients. Failure to comply with the terms of these contracts, including proper delivery of services, could lead to loss of business. We operate in a highly competitive marketplace. The levels of concentration and outsource penetration vary by country and by sector. Some markets are relatively concentrated with two or three key players. Others are highly fragmented and offer significant opportunities for consolidation and penetration of the self-operated market. Aggressive pricing from our competitors could cause a reduction in our revenues and margins. Failure to attract and recruit people with the right skills at all levels could limit the success of the Group. The Group faces resourcing challenges in some of its businesses due to a lack of industry experience amongst candidates and appropriately qualified people, and the seasonal nature of some of our business. Retaining and motivating the best people with the right skills, at all levels of the organisation, is key to the long term success of the Group. All management meetings throughout the Group feature a health and safety update as their first substantive agenda item. Health and safety improvement KPIs are included in the annual bonus plans for each of the business management teams. The Group has policies, procedures and standards in place to ensure compliance with legal obligations and industry standards. The safety and quality of our global supply chain are assured through compliance against a robust set of standards which are regularly reviewed, audited and upgraded as necessary to improve supply chain visibility and product integrity. We have strategies which strengthen our long term relationships with our clients and consumers based on quality, value and innovation. Our business model is structured so that we are not reliant on one particular sector, geography or group of clients. A rigorous tender review process is in place, which includes a critical assessment of contracts to identify potential risks (including social and ethical risks) and rewards, prior to approval at an appropriate level in the organisation. Processes are in place to ensure that the services delivered to clients are of an appropriate standard and comply with the required contract terms and conditions. We aim to minimise this by continuing to promote our differentiated propositions and by focusing on our points of strength, such as flexibility in our cost base, quality and value of service and innovation. The Group aims to mitigate this risk by efficient, time critical resource management, mobilisation of existing, experienced employees within the organisation, improved use of technology and through offering training and development programmes. The Group has established training, development, performance management and reward programmes to retain, develop and motivate our best people. The Group has a well established employee engagement initiative, Your Voice, which helps us to monitor, understand and respond to our employees needs. STRATEGIC REPORT 35

38 PRINCIPAL RISKS CONTINUED CHANGE IN RISK Increased risk Consistent risk RISKS DESCRIPTION EXAMPLES OF MITIGATION ECONOMIC AND POLITICAL ENVIRONMENT Economy Some sectors of our business could be susceptible to adverse changes in economic conditions and employment levels. With the variable and flexible nature of our cost base, it is generally possible to contain the impact of these adverse conditions. Cost inflation Political stability COMPLIANCE AND FRAUD Compliance and fraud Tax compliance Our objective is always to deliver the right level of service in the most efficient way. An increase in the cost of labour, for example, minimum wages in the USA and UK, or food, especially in countries such as Brazil, could constitute a risk to our ability to do this. We are a global business operating in countries and regions with diverse economic and political conditions. Our operations and earnings may be adversely affected by political or economic instability caused, for example, by the UK s decision to leave the EU. Ineffective compliance management with increasingly complex laws and regulations, or evidence of fraud, could have an adverse effect on the Group s reputation and could result in an adverse impact on the Group s performance if significant financial penalties are levied or a criminal action is brought against the Company or its directors. As a Group, we seek to plan and manage our tax affairs efficiently in the jurisdictions in which we operate. In doing so, we act in compliance with the relevant laws and disclosure requirements. However, in an increasingly complex international corporate tax environment, a degree of uncertainty is inevitable and we note in particular the policy efforts being led by the EU and the OECD which may have a material impact on the taxation of all international businesses. INFORMATION SYSTEMS AND TECHNOLOGY Information systems and The digital world creates many risks for a global technology business including technology failures, loss of 2017 confidential data and damage to brand reputation, 2016 through, for example, the use of social media. As part of our MAP framework, we seek to manage inflation by continuing to drive greater efficiencies through menu management, supplier rationalisation, labour scheduling and productivity. Cost indexation in our contracts also gives us the contractual right to review pricing with our clients. The Group remains vigilant to future changes presented by emerging markets or fledgling administrations and we try to anticipate and contribute to important changes in public policy. The Group s zero tolerance based Codes of Business Conduct and Ethics continue to govern all aspects of our relationships with our stakeholders. All alleged breaches of the Codes, including any allegations of fraud, are investigated. The Group s procedures include regular operating reviews, underpinned by a continual focus on ensuring the effectiveness of internal controls. Regulation and compliance risk is also considered as part of our annual business planning process. We manage and control these risks in a proactive manner and in doing so exercise our judgement and seek appropriate advice from reputable professional firms. Tax risks are assessed as part of the Group s formal governance process and are reviewed by the Board and the Audit Committee on a regular basis. We seek to assess and manage the maturity of our enterprise risk and security infrastructure and our ability to effectively defend against current and future cyber risks by using analysis tools and experienced professionals to evaluate and mitigate potential impacts. The Group relies on a variety of IT systems in order to manage and deliver services and communicate with our clients, consumers, suppliers and employees. We are focused on the need to maximise the effectiveness of our information systems and technology as a business enabler and to reduce both cost and exposure as a result. 36

39 CORPORATE RESPONSIBILITY Making a positive impact STRATEGIC REPORT The Group s strategy and approach to corporate responsibility (CR) are well aligned as we improve the business model to reflect more sustainable practices. CR is a keystone of our commitment to provide the highest quality service to our customers. Across the business, the safety and wellbeing of our colleagues and consumers is our number one operational priority and supports our growth strategy, increases trust and helps us attract the best talent. ENGAGING WITH OUR STAKEHOLDERS We continually listen to our stakeholders and regularly review our approach to CR to keep pace with change and maintain our position as a responsible business partner. We consider the issues that matter most to our business and stakeholders to help us inform our business strategy. Through this process we have identified key issues we believe materially impact our business and our relationships with stakeholders (see matrix below for highlights) in our journey to becoming a more sustainable business. LEADERSHIP A SCORE (2016: Leadership A-) SCORE (2016: 69) TIER SCORE On pages 38 and 39 we explain how our four CR pillars address the most material business issues, why they matter to us and how they will inform our priorities and activities moving forward. Impact High Medium Low Low Medium High Probability PROGRESS THIS YEAR Each year, we participate in the key sustainability indices that focus on economic, environmental and social factors that are relevant to a company s success. We use our participation in such indices to benchmark our performance within our sector and identify where we have an opportunity to improve our approach towards more sustainable business practices. Increasingly, our stakeholders, including clients, investors and NGOs, proactively assess the scores that we achieve and the progress we are making. We have performed well this year, including our achievement in the Carbon Disclosure Project (CDP) of a Leadership score of A- in the Climate Change module. In DJSI RobecoSAM, we scored 70% across all three dimensions (economic, environmental and social) which is well above the industry average of 39%. This now places us in both their World and Europe ratings. 3 2 REDUCING RISKS IN OUR GLOBAL SUPPLY CHAIN We spend around 6 billion on our global food supply chain and reducing risk is important to us to ensure food security for future generations. This year, we have continued to develop the way in which we measure our impacts and assess the risk for our business that deforestation presents. Our progress has resulted in a marked performance improvement in the CDP Forests module against peer companies in our sector. We are therefore delighted to have been recognised as the most improved business in the Forests module for soy. We will continue to set ourselves more ambitious targets and actively support the sustainable production of forest risk commodities through supplier engagement. OUR 2017 CDP FORESTS RESULT Benchmarking A- Timber A- B B B B C Compass Palm Oil Cattle Products Soy Overall CDP Forests average Our Company performance benchmarked against peer companies in the Hotels, Restaurants and Leisure and Tourism Services sector and the 2017 CDP Forests sample. This demonstrates we are assessing the risks related to deforestation and are measuring and managing the impacts. Visit our website at for more information about our approach to CR and progress against the performance targets that we have set ourselves. C Member of

40 CORPORATE RESPONSIBILITY CONTINUED Material impacts and progress OUR PILLARS OUR PRIORITIES OUR UN SDGs OUR PEOPLE Our people are fundamental to our great service and reputation and we recognise their positive contribution to our performance. Ensuring our employees are safe, well trained, motivated and productive is an essential component of our business model. 1 2 Workplace health & safety Transparency around processes, controls and reporting are in place and monitored to ensure the safety and wellbeing of our people and of those who work with us. Employee recruitment & retention Provide our people with training and development opportunities. Recognise and reward their great work. RESPONSIBLE SOURCING HEALTH & WELLBEING Having a responsible global supply chain is important for us to deliver the quality of food service which is a key business driver for Compass and of paramount importance to our clients and consumers. As a result of our actions across our global supply chain, we are able to build client and consumer confidence, reduce potential risks and develop sustainable supplier relationships. By pursuing our passion for wellbeing and nutrition, we can help our consumers and employees adopt a more balanced lifestyle. We support our clients to deliver improved employee performance and satisfaction, encouraging client retention in our business Product safety Visibility around the ingredients that we source for our operations. Supply chain integrity Ensure our global supply chain is acting responsibly and humanely towards its workforce. CBC compliance Ensure the implementation of our Codes of Business Conduct and Ethics. Measure, report and act upon concerns via the Speak Up whistleblowing programme. Wellbeing and nutrition Promote simple product labelling and signposting at the point of sale to encourage our consumers to make healthier choices. Raise awareness of mental health issues and the support programmes available to our employees. ENVIRONMENTAL REPORTING As a leading food and support services provider with a global footprint, we have a clear responsibility to help protect the environment. We are reducing our impact by implementing programmes that focus on the improved use of resources, helping us to manage our costs and those of our clients more effectively. 7 Environmental reporting Transparency around our environmental impacts, target setting and activities to demonstrate progress. Working to the Science Based Targets Initiative s accredited methodologies, we will reduce the intensity of our Greenhouse Gas (GHG) emissions by 50% by

41 STRATEGIC REPORT OUR PROGRESS We employ 550,000+ colleagues worldwide and protecting their wellbeing is very important to us. Since 2014, we have achieved a 26% reduction in our Lost Time Incident Frequency Rate performance. This year, with a continued focus on embedding a strong safety leadership culture, we have achieved an improvement in our performance compared to last year, resulting in 15% less lost time incidents across our global business. Sadly, we had two work-related fatalities in our Europe business as the result of vehicle accidents. We conduct root cause investigations of all fatalities to identify opportunities to strengthen our policies and controls. The lessons learned are shared to ensure that other parts of our business can learn from serious events. All work-related fatalities are reported to the Executive Board and Group Board. Global Lost Time Incident Frequency Rate % (since 2014) We have extended our third party audit programme to validate that all our markets are complying with the requirements of our Global Food Safety Standards. This year, audit results identified that some of our developing markets, including South East Asia and Latin America, required further support to implement effective controls. We have responded by investing in upskilling our teams and securing additional resource to help them embed the required operational standards. Global Food Safety Incident Rate -14% (since 2014) Many of our businesses have implemented wellbeing programmes to encourage healthy behaviours amongst colleagues and consumers. These include healthy lifestyle campaigns, raising workplace awareness of mental health and employee assistance programmes. For example, we recognise that developing good eating habits in childhood sets people up for a lifetime of better diet. To encourage the right behaviours and habits in the younger generation, our Chartwells team in the UK business developed a Putting the Fun Back into Food programme. Since 2006, the programme has reached over half a million students. The aim is to excite children of all backgrounds about food and cooking to help them lead healthy lives. Number of sites offering healthy eating programmes 16,715 16,900 17,576 17,980 +8% (since 2014) Compass Group s disclosure in accordance with the Companies Act 2006 (Strategic and Directors Reports) Regulations 2013 is stated in the table below: GLOBAL GHG EMISSIONS FOR THE PERIOD 1 OCTOBER 2016 TO 30 SEPTEMBER 2017 UNIT CURRENT REPORTING YEAR COMPARISON YEAR Combustion of fuel & operation of facilities (Scope 1) Tonnes (t) CO 2 e 128, ,488 Electricity, heat, steam and cooling purchased for own use (Scope 2 location based) tco 2 e 8,376 9,100 Total Scope 1+2 tco 2 e 136, ,588 Emissions intensity per m revenue tco 2 e/ m We have calculated our Scope 1 and 2 GHG emissions since 2008 and aim to improve the scope and accuracy of our reporting each year. We have established an organisational boundary, reporting on emissions originating from our top 20 countries, accounting for 94% of Group activity by revenue. Our GHG emissions calculations are based on the GHG Protocol Corporate Accounting and Reporting Standard (revised edition). Applying an operational control approach, we have identified relevant activity data for Scope 1 and 2 emissions and have used the location based Scope 2 calculation method. GHG intensity ratio % (since 2014) 39

42 CORPORATE RESPONSIBILITY CONTINUED WORKING TOWARDS THE SUSTAINABLE DEVELOPMENT GOALS In 2016, we identified through our strategic review that stakeholders and international clients had a growing interest in supporting the United Nations Sustainable Development Goals (SDGs) agreed by world leaders in September In response to this feedback, we continue to consider how our business activities can help us to deliver our contribution towards the SDGs at a global and local level. The SDGs provide a useful platform and common language upon which we can build new, and strengthen existing, global and local partnerships to progress our sustainability activities. Of the 17 goals designed to help deliver the 2030 vision for a more sustainable planet, we have identified six where we believe we can make the most positive social impact. In addition to these issue specific goals, we recognise the critical importance of working in partnership, supported by SDG 17 (Partnerships for the Goals). LOOKING AHEAD TO We will continue to engage our teams and stakeholders around the world to understand the issues which matter most and to identify opportunities to build stronger partnerships which address global and local sustainability priorities. UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS END HUNGER, ACHIEVE FOOD SECURITY AND IMPROVED NUTRITION AND PROMOTE SUSTAINABLE AGRICULTURE ENSURE HEALTHY LIVES AND PROMOTE WELLBEING FOR ALL AT ALL AGES ACHIEVE GENDER EQUALITY AND EMPOWER ALL WOMEN AND GIRLS PROMOTE SUSTAINED, INCLUSIVE AND SUSTAINABLE ECONOMIC GROWTH, FULL AND PRODUCTIVE EMPLOYMENT AND DECENT WORK FOR ALL CONSERVE AND SUSTAINABLY USE THE OCEANS, SEAS AND MARINE RESOURCES FOR SUSTAINABLE DEVELOPMENT For a more detailed review of our performance against targets, please visit PROTECT, RESTORE AND PROMOTE SUSTAINABLE USE OF TERRESTRIAL ECOSYSTEMS, SUSTAINABLY MANAGE FORESTS, COMBAT DESERTIFICATION, AND HALT AND REVERSE LAND DEGRADATION AND HALT BIODIVERSITY LOSS STRENGTHEN AND REVITALISE THE GLOBAL PARTNERSHIP FOR SUSTAINABLE DEVELOPMENT 40

43 STRATEGIC REPORT THE GLOBAL CHALLENGE OUR ROLE FOR EXAMPLE By 2050, the world s population is expected to increase by two billion. At present almost 800 million of the world s population are malnourished and starving. This means that the need to improve sustainable agriculture will become increasingly critical as the demand on natural resources intensifies. Every year, we spend around 6 billion on food. Collaborating with our global supply chain to design and deliver scalable and practical solutions for food security and sustainable agriculture is therefore vitally important to safeguard the future of our business. Since 2014, our Imperfectly Delicious Produce programme run by our US business has used over 4.5 million lbs of imperfect fruit and vegetables that would otherwise have rotted in fields or been sent to composting or landfill for simply not meeting an artificial standard of attractiveness. Nutrition is essential for sustainable development. Every year, poor nutrition kills over three million children under five, whilst world wide over two billion people are overweight or obese. Each year, we serve over five and a half billion meals. By pursuing our passion for wellbeing and nutrition, we are committed to helping our consumers and employees adopt a more balanced lifestyle. Since 2010, we have worked towards a target that 100% of our units will provide Balanced Choices or similar healthy eating programmes by This year, we have seen a further improvement in our performance (69% vs 67% in 2016). Whilst we have not achieved our target this year, we expect to continue to make good progress during the coming year. Women and girls around the world struggle to exercise their rights, face discrimination, legal barriers and violence and receive unequal pay for equal work. Women make up 55% of our global workforce and 28% of our global leadership team. We are resolved to empower all our female employees as we know this leads to increases in productivity, organisational effectiveness and consumer satisfaction. Since 2016, our UK business has run the Women in Food programme to tackle the shortage of female chefs. By 2020, we expect that 50% of the chefs in our UK workplace will be female. This year, 35% of the chef population was made up of women and we will continue to focus our activities to achieve our 2020 target. The availability of decent work is a must for lasting, inclusive and economic growth, yet while the global labour force continues to grow, there are not enough jobs available, particularly amongst young people and indigenous communities. Our 550,000+ employees are fundamental to our great service and reputation. Around the world we are working with local communities to offer fair employment and great career opportunities. In Australia, we run a programme called Project 1050 to support the recruitment of an additional 1,050 indigenous jobseekers into the Compass workforce by In 2017, we achieved a further 339 jobseekers versus our annual target of 244, towards our 2019 goal. 30% of the world s fish stocks are overexploited, compromising their ability to produce sustainable yields. Three words encapsulate our approach to sustainable seafood: (1) Avoid: by not serving seafood on the Marine Stewardship Council s (MSC) fish to avoid list; (2) Improve: by buying more certified sustainable seafood each year; (3) Promote: the availability of responsibly sourced fish to our consumers. We have partnered with the MSC in the UK to develop the Good Fish Guide app, which encourages everyone from chefs to consumers to make more sustainable choices easily and quickly. People need nature to thrive. It is particularly critical for sustainable agriculture, yet deforestation, desertification and loss of biodiversity and natural habitats are degrading fertile land and reducing crop productivity. We are working across our global supply chain to ensure we source our food and non-food products in a sustainable manner with the least possible impact on the environment. Globally, we are an active member of the Roundtables on Responsible Soy and Responsible Palm Oil. 18 of our top 20 countries have already established sustainable and ethical sourcing programmes. The SDGs set out a vision for ending poverty, hunger and inequality and protecting natural resources by Realising this ambition will require a step change in the way that the private sector, governments and civil society work together in partnership. As a global business, we recognise the critical importance of working in partnership with our clients, suppliers and other stakeholders to improve the positive contribution that we can make to help address some of the biggest issues that we all face in the 21 st century. We have been assessed annually by the Business Benchmark on Farm Animal Welfare since the publication of its first report in We remain committed to continuously improving our performance by embedding a common framework designed to deliver enhanced and harmonised farm animal welfare standards throughout our global supply chain. We achieved a benchmark score of Tier 4 in 2016 and await results of the 2017 assessment. 41

44 GOVERNANCE AND DIRECTORS REPORT CHAIRMAN S LETTER Creating and maintaining the right culture for growth As a Board, we have an established commitment to maintain a well defined and effective system of governance which supports our corporate strategy to deliver sustainable organic growth. Integrity and trust in our Company s behaviour are more important than ever in today s business world. One of my key responsibilities as Chairman is to set the tone for the Company and ensure good governance and in this, I have been extremely well supported by the members of the Board. They bring balance and a wealth of skills and experience to our organisation which complement the talents of our executive team. I thank them all for their valuable contribution as we continue to uphold the high standards expected of us, to maintain oversight of the strategic, operational and compliance risks across the Group and to define our path to success. DEAR SHAREHOLDER On behalf of the Board, I am pleased to present Compass Group PLC s annual Corporate Governance Report for the financial year ended 30 September It has been another year of progress and development in the Company s governance agenda. Throughout this and other parts of the Annual Report, we aim to provide investors and other stakeholders with an insight into the governance activities and ethical practices which have supported our corporate performance during the year. BOARD COMPOSITION AND CHANGES As announced on 21 September 2017, Dominic Blakemore was appointed Deputy Group Chief Executive from 1 October Following a period of transition, Dominic will succeed Richard Cousins as Group Chief Executive on 1 April 2018 and Richard will retire from the Group on 30 September The decision to appoint Dominic as Richard s successor was taken after a rigorous selection process, more detail of which can be found in the Nomination Committee Report on pages 65 to 67. In February 2017, Susan Murray stepped down from the Board and its committees, having completed her nine year tenure as a non-executive director, and was succeeded by Nelson Silva as Chairman of the Corporate Responsibility Committee. In the run up to the Company s Annual General Meeting (AGM) in February, votes were lodged against Mrs Vittal s reappointment as a director based on concerns expressed by some shareholders that she was overboarding. Mrs Vittal has reviewed her portfolio and more details of the action she has taken to address these concerns can be found in the Nomination Committee Report on page 66. SUCCESSION PLANNING AND TALENT PIPELINE Succession planning continues to be an area of focus for the Board and the Nomination Committee. In the next three years, in line with best practice, two of our longer serving non-executive directors are expected to retire, each having completed their nine year tenure. In the coming year, we plan to undertake further work specifically around succession planning, to ensure we are well placed to maintain the extensive listed company experience brought to the Board by those succession directors. We will endeavour to meet Lord Davies target of having 33% female representation on the Board by 2020, which has been eroded by the retirement of Susan Murray, and will also consider Sir John Parker s initial recommendations on diversity. However, we remain focused on ensuring that the Board comprises a majority of independent non-executive directors who have the capability, skills and experience necessary to objectively challenge executive management, offset by the need to ensure continuity on the Board. In this regard, we continue to strengthen our approach to talent management and succession planning at senior level, a subject which continues to command the Board s full attention. 42

45 REMUNERATION POLICY Our current Remuneration Policy will expire next year and the proposed policy, which is intended to apply for the coming three years, will be put to shareholders for their approval at the AGM on 8 February The proposed policy has been designed so that there is close alignment between executive reward and the delivery of our business strategy. Details of the proposed policy, the outcome of the shareholder consultation process that was undertaken prior to the proposed policy being developed and the implementation of the current policy during the year can be found in the Directors Remuneration Report on pages 68 to 94. CULTURE AND GOVERNANCE Our corporate culture defines who we are, what we stand for and how we do business and it is integral to the success of Compass. Our good reputation has been built on the solid foundation of an ethical culture, underpinned by a well defined and effective system of governance. It has assisted in the creation and protection of the long term value of the Company and supported our ongoing corporate strategy to deliver sustainable organic growth. The Board defines the purpose of the Company and identifies the values that guide it. We remain committed to upholding the highest ethical standards, operating on the principle that the tone at the top sets the standard for the rest of the business. Over the years, we have carefully developed a common set of expected behaviours based on our corporate values and an effective system of governance, both of which have been influential in shaping and embedding a strong ethical and governance culture across the Group. The Board is responsible for changes to corporate governance and culture. However, from a practical perspective, the executive directors and senior managers are responsible for implementing behavioural and governance changes and for clearly articulating to colleagues in the wider business the reasons for change, its benefits or the consequences of not changing. We continuously strive to create an environment where our corporate values are not just words, but are put into practice, promoting positive and productive behaviour every day. The Group Chief Executive and other members of the executive management team take an active lead, providing encouragement and support to colleagues to ensure that ethical standards are maintained and good governance is put into practice. Key functions such as legal, finance, human resources and internal audit have also been empowered to promote, embed and integrate good standards of ethical behaviour and corporate governance across the Group. The success of our business is dependent upon a strategy which benefits our investors, employees, clients, suppliers and the wider stakeholder community. We have invested time and resources in communicating with employees and designed training and development programmes to educate and encourage the high standards of conduct that reflect our vision to be a world-class provider of contract food and support services, renowned for our great people, great service, and great results. These efforts are underpinned by our Codes of Business Conduct and Ethics. THE YEAR AHEAD We are committed to doing things in the right way and will continue to strengthen our governance processes to ensure that we are aligned with best practice and that our approach to disclosure remains understandable and transparent. Paul Walsh Chairman 21 November 2017 GOVERNANCE 43

46 GOVERNANCE AND DIRECTORS REPORT INTRODUCTION TO CORPORATE GOVERNANCE Committed to the highest standards UK CORPORATE GOVERNANCE CODE COMPLIANCE Responsibility for good governance lies with the Board. The Board is accountable to shareholders and is committed to the highest standards of corporate governance as set out in the UK Corporate Governance Code 2016 (the Code). The Code can be found on the Financial Reporting Council (FRC) website at This Corporate Governance Report, together with the Directors Remuneration Report set out on pages 68 to 94, describes how the Board has applied the main principles of good governance, as set out in the Code, during the year under review. COMPLIANCE STATEMENT It is the Board s view that for the year ended 30 September 2017 the Company has been fully compliant with all of the principles set out in the Code applicable to this reporting period. The Company s auditor, KPMG LLP, is required to review whether the above statement reflects the Company s compliance with the provisions of the Code specified for its review by the UK Listing Authority (UKLA) Rules and to report if it does not reflect such compliance. No such report has been made. The directors present their Annual Report and the audited consolidated financial statements of the Company and its subsidiaries for the year ended 30 September This Corporate Governance Report on pages 42 to 94 and the Other Statutory Disclosures on pages 95 to 100, together with the Directors Responsibilities statement on page 101 and the Strategic Report on pages 1 to 41 which have been incorporated into this Report by reference, make up the Directors Report. HOW WE GOVERN THE COMPANY The Board leads the Group s governance framework. It is responsible for setting the strategic targets for the Group, monitoring progress made, approving proposed actions and for ensuring that the appropriate internal controls are in place and that they are operating effectively. The Board is assisted by four principal committees (Audit, Corporate Responsibility, Nomination and Remuneration), each of which is responsible for reviewing and dealing with matters within its own terms of reference. At scheduled Board meetings, the minutes of all committee meetings are circulated and a summary of committee meetings discussed (as appropriate). All of the non-executive directors are members of all principal committees. Individual reports from each principal committee chairman can be found on pages 54 to 94. The Company also has a number of executive management committees (Disclosure, Executive Board and General Business). These have been established in order to consider various issues and matters for recommendation to the Board and its principal committees or to deal with day to day matters within the authority granted by the Board. This Directors Report also contains information required to be disclosed under the UKLA s Rules and under the Disclosure Guidance and Transparency Rules (DGTR). To the extent necessary, certain information is incorporated into this Report by reference. Our governance structure comprises the functions on the opposite page, supported by the Group s standards, policies and internal controls, which are described in more detail over the following pages. 44

47 GOVERNANCE STRUCTURE SHAREHOLDERS We have a geographically diverse shareholder base of 42,059, comprising 4,256 institutional investors and 37,803 private investors.* GOVERNANCE CHAIRMAN Responsible for the leadership of the Board and for ensuring there is effective debate and challenge. BOARD Responsible for the performance and long term success of the Company, including health and safety, leadership, strategy, values, standards, controls and risk management. AUDIT COMMITTEE Responsible for the Group s financial reporting and effectiveness of the internal and external audit functions. CORPORATE RESPONSIBILITY COMMITTEE Advises the Board on broad CR policy taking into account the overall strategic plan and other factors. NOMINATION COMMITTEE Ensures the Board has the necessary balance of skills, experience and diversity to oversee the delivery of strategy. REMUNERATION COMMITTEE Determines the reward strategy for executive directors and senior managers to ensure reward is aligned to shareholders' interests. SEE PAGE 54 SEE PAGE 62 SEE PAGE 65 SEE PAGE 68 DISCLOSURE COMMITTEE Oversees the disclosure of market sensitive information. SEE PAGE 53 EXECUTIVE BOARD Day to day operational management and implementation of strategy. SEE PAGE 53 GENERAL BUSINESS COMMITTEE Conducts the Company s business within clearly defined limits delegated by the Board. SEE PAGE 53 * As at 30 September

48 GOVERNANCE AND DIRECTORS REPORT INTRODUCTION TO CORPORATE GOVERNANCE CONTINUED The Board manages the business of the Company and may, subject to the Articles of Association and applicable legislation, borrow money, guarantee, indemnify, mortgage or charge the business, property and assets (present and future), issue debentures and other securities and give security, whether outright or as a collateral security, for any debt, liability or obligation of the Company or of any third party. The Board sets the Group s values and standards and ensures that it acts ethically and that its obligations to its shareholders are understood and met. The Board has a formal schedule of matters reserved for its decision as follows: strategy and management Board membership and other appointments financial reporting and controls internal controls contracts capital structure communication remuneration delegation of authority corporate governance matters other matters For example, the Board must approve any changes to the Group s capital structure, operating and expenditure budgets, significant capital investment or any new significant client contract. However, the Board s primary role remains to provide entrepreneurial leadership and to review the overall strategic development of the Group as a whole. The Board has delegated day to day operational decisions to the Executive Board. The Executive Board is supported by country and regional management teams who are responsible for achieving agreed targets, maintaining budgetary controls and implementing policies and controls at country and business unit level. The work of the Board and its committees is described in the following pages. In this section of the Governance Report, we have also set out our governance structures and processes, how we have applied the main principles and complied with the relevant provisions of the Code. Activities which provide a flavour of the work undertaken by the Board and its committees during the year have been highlighted. BOARD OF DIRECTORS As at 30 September 2017, and as at the date of this Report, the Board of Directors was made up of 11 members, comprising the non-executive Chairman, four executive directors and six non-executive directors. The roles of Chairman and Group Chief Executive are separate and clearly defined, with the division of responsibilities set out in writing and agreed by the Board. All of the non-executive directors are considered by the Board (and by the definition contained in the Code) to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement. The Board considers that each of the non-executive directors brings their own senior level of experience, gained in each of their own fields, predominantly in international operations. The Company s policy relating to the terms of appointment and the remuneration of both executive and non-executive directors is detailed in the Directors Remuneration Report, which is on pages 68 to 94. BOARD TENURE 36% 18% 46% EXECUTIVE AND NON-EXECUTIVE DIRECTOR BALANCE 55% 9% 36% More than 5 years 3-5 years 1-3 years Executive directors Non-executive directors Non-executive Chairman 46

49 GOVERNANCE AND DIRECTORS REPORT OUR BOARD Effective and experienced leadership PAUL WALSH C N * CHAIRMAN Joined as a non-executive director in January Appointed Chairman in February RICHARD COUSINS (62) C E G N (58) E G (48) C D E G (45) Key skills and competencies Paul has significant experience in marketing, buying and retail operations as well as substantial corporate leadership experience. Career Former Chief Executive, Diageo plc, from September 2000 to June 2013 and now an advisor to the Chairman and Chief Executive, having originally joined the Board in Formerly Chief Executive Officer of the Pillsbury Company, Chairman of Ontex Group N.V. and a director of GrandMet. Former nonexecutive director of HSBC Holdings plc, Simpsons Malt Limited, Unilever PLC, Centrica plc, United Spirits Limited and nominee director of Pace Holdings Corp. Former Business Ambassador on the UK Government s Business Ambassador network and a Member of the Council of the Scotch Whisky Association. Current external appointments Chairman of Avanti Communications Group plc and Chime Communications Limited. Non-executive director of FedEx Corporation and RM2 International S.A. Advisor to TPG Capital LLP (TPG) and a nominee director of the various companies as required by TPG. GROUP CHIEF EXECUTIVE Joined the Board in May 2006 and was appointed Group Chief Executive in June Key skills and competencies Richard brings invaluable UK and international corporate expertise to the Board. He has experience in operational research and strategic planning and has held a number of key management roles. Career Richard spent six years as Chief Executive Officer of BPB plc, having previously held a number of positions with that company. His earlier career was with Cadbury Schweppes plc and BTR plc. He is also a former non-executive director of P & O plc, HBOS plc, Reckitt Benckiser Group plc and Tesco PLC and a former Member of the Advisory Board of Lancaster University Business School. Current external appointments None. DOMINIC BLAKEMORE DEPUTY GROUP CHIEF EXECUTIVE Joined the Board in February 2012 and appointed as Group Finance Director in April Dominic was appointed Group Chief Operating Officer, Europe on 1 December 2015 and stepped down as Group Finance Director on the same day. On 1 October 2017, Dominic was appointed Deputy Group Chief Executive. He will take over as Group Chief Executive on 1 April Dominic will become a member of the Corporate Responsibility and Nomination Committees from 1 April Key skills and competencies Dominic has extensive financial management experience in a number of international businesses together with general corporate management experience. Career Former Chief Financial Officer of Iglo Foods Group Limited, which Dominic joined from Cadbury Plc, where he was European Finance & Strategy Director, having previously held senior finance roles as Corporate Finance Director and Group Financial Controller. Prior to joining Cadbury Plc, Dominic was a director of PricewaterhouseCoopers LLP. Current external appointments Non-executive director of Shire plc and a Member of the Academic Council of University College London. JOHNNY THOMSON GROUP FINANCE DIRECTOR Joined the Board and appointed Group Finance Director on 1 December Key skills and competencies Johnny brings extensive finance and accounting experience across a range of businesses as well as operational experience within the Group. Career Associate of the Institute of Chartered Accountants in England and Wales, Johnny joined the Group in April 2009 as Finance Director for the Group s Brazilian business. He was appointed Chief Executive Officer for the Brazilian business in October 2012 and, in February 2014, became the Regional Managing Director, Latin America, comprising Argentina, Brazil, Chile, Colombia and Mexico. Prior to joining the Group, Johnny was Vice President Finance for the UK and Ireland Division of Hilton Hotels and served in a variety of audit and transactional services and international/client secondments at PricewaterhouseCoopers LLP. Current external appointments None. GOVERNANCE 47

50 GOVERNANCE AND DIRECTORS REPORT OUR BOARD CONTINUED GARY GREEN E G (60) GROUP CHIEF OPERATING OFFICER, NORTH AMERICA Appointed to the Board in April 2007 and became Group Chief Operating Officer, North America in April Key skills and competencies Gary brings strong business and operational leadership as well as business development and wide ranging sales experience. Career Gary is a Chartered Accountant and in 2001 received an honorary doctorate from Johnson & Wales University in the USA. Gary joined the Group in 1986 in a senior finance role in the UK and became a UK director in He relocated to the USA in 1994 as Chief Finance Officer of the Group s North American business and in 1999 became Chief Executive Officer. Current external appointments None. DON ROBERT A C N R (58) A C N R * (63) A * C N R SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR (SID) Joined the Board in May Appointed SID on 1 October Key skills and competencies Don has extensive international board and general management experience, especially in the financial sector. Career Don was formerly the Chief Executive Officer of Experian plc, Chairman of the Consumer Data Industry Association and Trustee of the Education and Employers Taskforce and previously held positions with First American Corporation, Credco, Inc. and US Bancorp. Current external appointments Chairman of Experian plc, Achilles Holdco Limited and Validis Holdings Limited. Don is also a non-executive director of the Court of the Bank of England. CAROL ARROWSMITH NON-EXECUTIVE DIRECTOR Appointed to the Board in June Key skills and competencies Carol brings extensive advisory experience, especially of advising boards on executive remuneration across a range of sectors. Career Carol is a former partner and advisor of Deloitte LLP and was Vice Chairman of the UK business and former director of the Remuneration Consultants Group. Carol is a Fellow of the Chartered Institute of Personnel and Development. Current external appointments Member of the Advisory Group for Spencer Stuart, director and trustee of Northern Ballet Limited, a non-executive director of TMF Group PLC and director of Arrowsmith Advisory Limited. JOHN BASON (60) NON-EXECUTIVE DIRECTOR Appointed to the Board in June Key skills and competencies John brings significant financial and international experience to the Board, gained from his long career with major global businesses. Career Member of the Institute of Chartered Accountants in England and Wales. John was previously Finance Director of Bunzl plc and former trustee of the Voluntary Service Overseas. Current external appointments Finance Director of Associated British Foods plc and Chairman of the charity FareShare. 48

51 STEFAN BOMHARD NELSON SILVA IREENA VITTAL MARK WHITE A C N R (50) A C * N R (62) A C N R (49) A C D E G N R (57) NON-EXECUTIVE DIRECTOR Appointed to the Board in May NON-EXECUTIVE DIRECTOR Appointed to the Board in July NON-EXECUTIVE DIRECTOR Appointed to the Board in July GROUP GENERAL COUNSEL AND COMPANY SECRETARY Key skills and competencies Stefan brings extensive experience of working in international environments, particularly relating to the operation, sales and marketing of well-known consumer food and drink brands. Career Stefan was previously Regional President, Europe, Geneva at Bacardi Martini for five years and held a number of worldwide senior positions at Cadbury Plc, Unilever PLC, Diageo plc, Burger King and Procter & Gamble. Current external appointments Chief Executive Officer of Inchcape plc. Key skills and competencies Nelson has considerable executive management experience in a variety of senior leadership roles within major international companies, with a particular focus on Brazil. Career Nelson was formerly President of the Aluminium business unit at BHP Billiton, based in the UK. Prior to joining BHP Billiton, he held a number of senior positions at Vale, including Sales and Marketing Director based in Belgium, Japan and Brazil. Nelson was also Managing Director of Embraer for Europe and Africa, based in France, and Chief Executive Officer of All Logistica in Argentina. Nelson previously held the position of Senior Vice President of BG Group plc responsible for Brazil, Bolivia and Uruguay. He is a former board member of the Brazilian Institute of Oil and Gas, the Brazilian Association of Petroleum Companies and of the Social and Development Council of Brazil s Presidency. Nelson was formerly a senior consultant to BHP Billiton Brazil and a Board Member of the Brazilian Symphonic Orchestra. Current external appointments Executive director of Petróleo Brasileiro S.A. Key skills and competencies Ireena brings strong advisory, business and operational experience across a variety of retail businesses, with a particular focus on India. Career Ireena was formerly a nonexecutive director of Zomato Media Private Limited, GlaxoSmithKline Consumer Healthcare and Axis Bank Limited, Head of Marketing and Sales at Hutchinson Max Telecom and partner at McKinsey and Company. Current external appointments Non-executive director of Godrej Consumer Products Limited, WIPRO Limited, The Indian Hotels Company Limited, Tata Global Beverages Limited, Tata Industries, Titan Company Limited and Cipla Limited. Please refer to page 66 in respect of Mrs Vittal's portfolio review and rationalisation. Joined the Group as Group General Counsel and Company Secretary in June Key skills and competencies Mark has extensive legal and corporate secretariat experience gained in a number of major international businesses. Mark is also a Trustee of the Compass Group Pension Plan and the Compass Retirement Income Savings Plan. Career Mark is a Solicitor. He was previously Group Company Secretary and General Counsel of Wolseley plc and Company Secretary of Enterprise Oil plc and Rotork p.l.c. Current external appointments Member of the Upper Tribunal, Tax and Chancery Chamber and of the First-tier Tribunal, General Regulatory Chamber. BOARD COMMITTEE MEMBERSHIP A Audit Committee page 54 C Corporate Responsibility Committee page 62 D Disclosure Committee page 53 E Executive Board page 53 G General Business Committee page 53 N Nomination Committee page 65 R Remuneration Committee page 68 * Chairman Secretary GOVERNANCE 49

52 GOVERNANCE AND DIRECTORS REPORT CORPORATE GOVERNANCE DIRECTOR EFFECTIVENESS AND TRAINING The Board meets regularly during the year as well as on an ad hoc basis, as required by business needs. The Board met six times during the year and director attendance for each meeting is shown in the table below. MEETINGS ATTENDANCE NAME ATTENDANCE 1 Carol Arrowsmith 6 of 6 John Bason 6 of 6 Dominic Blakemore 6 of 6 Stefan Bomhard 6 of 6 Richard Cousins 6 of 6 Gary Green 6 of 6 Susan Murray 2 2 of 2 Don Robert 6 of 6 Nelson Silva 6 of 6 Johnny Thomson 6 of 6 Ireena Vittal 6 of 6 Paul Walsh 6 of 6 1. The number of meetings attended out of the number of meetings eligible to attend. 2. Stepped down from the Board and its committees at the conclusion of the Company s AGM on 2 February A Board s Eye View If a director is unable to attend a Board or committee meeting, the Chairman of the Board and/or committee chairman are informed and the absent director is encouraged to communicate comments and opinions on the matters to be considered. Each director also attends the AGM to answer shareholder questions. Board activities are structured to help the Board achieve its goals and to provide support and advice to the executive management team on the delivery of Group strategy within a robust governance framework. Throughout the year, the Board received presentations from colleagues from across the Group and regularly reviewed the periodic financial results, market consensus, competitor updates, merger and acquisition opportunities, capital expenditure and other matters. We have set out some highlights from the Board s calendar during below. Meetings between the non-executive directors, both with and without the presence of the Group Chief Executive, are scheduled in the Board s annual programme. During the year, non-executive directors met on several occasions without the presence of executives. These meetings were encouraged by the Chairman and provide the non-executive directors with a forum in which to share experiences and to discuss wider business topics, fostering debate in Board and committee meetings and strengthening working relationships. NOVEMBER 2016 review of HSE performance review of financial performance reviewed the draft final results announcement considered the likely level of final dividend for the year ended 30 September 2016 appointed a committee of the Board to deal with matters related to the Company s 2016 Annual Report and Accounts including: recommendation of the final dividend approval and release of the final results announcement consideration of the Audit Committee s advice as to whether the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides sufficient information for shareholders to assess the Company s position and performance, business model and strategy oversight of the preparation and approval of the Annual Report and Accounts together with the Notice of Annual General Meeting and Proxy Card received a business presentation from a senior colleague of the Group s Latin American business (Argentina, Brazil, Chile, Colombia and Mexico) FEBRUARY 2017 review of HSE performance review of financial performance attended the Company s AGM received a presentation related to digital and other technological advancements used, or to be used, in the business Education sector update MARCH 2017 review of HSE performance review of financial performance reviewed shareholder return options including the quantum, mechanics, funding and timing of return attended offsite Board and committee meetings which were held in San Francisco and Palo Alto, giving the Board an insight into the cultural tone of the organisation in the USA both at client sites and elsewhere considered the Group s biannual major risk assessment review MAY 2017 review of HSE performance review of financial performance reviewed the draft interim results announcement and provisional recommendation with regard to the rate of interim dividend reviewed further details of Shareholder Return and Share Capital Consolidation options including a draft shareholder circular participated in the internal evaluation of the Board 50

53 In addition to routine financial and operating reports and updates (including health and safety) the Board spends time debating and formulating Group strategy, its performance and review. Each year, the Board aims to hold two meetings at Group locations. By going out into the business, the directors are able to meet with a diverse group of colleagues on a more informal basis which greatly assists in the succession planning process. These visits provide an opportunity to assess local management performance and potential, to gain further insight into how the business works on a day to day basis and to speak first hand to local management and listen to their views. The format of visits often comprises a macroeconomic overview of the country; its social and political systems; challenges and opportunities; a review of the competitive landscape; and a detailed review of the relevant business sectors in which the business operates, its people, as well as the three year plan. The Board has established a procedure for directors, if deemed necessary, to take independent professional advice at the Company s expense in the furtherance of their duties. Every director also has access to the Group General Counsel and Company Secretary, who is charged with ensuring that Board procedures are followed and that good corporate governance and compliance are implemented throughout the Group. Together with the Group Chief Executive and the Group General Counsel and Company Secretary, the Chairman ensures that the Board is kept properly informed and is consulted on all issues reserved to it. Board papers and other information are distributed in a timely fashion to allow directors to be properly briefed in advance of meetings. In accordance with the Company s Articles of Association, directors have been granted an indemnity issued by the Company to the extent permitted by law in respect of liabilities incurred as a result of their office. The indemnity would not provide any coverage where a director is proved to have acted fraudulently or dishonestly. The Company has also arranged appropriate insurance cover in respect of legal action against its directors and officers. In accordance with best practice, the Chairman addresses the developmental needs of the Board as a whole, with a view to further developing its effectiveness as a team, and ensures that each director refreshes and updates his or her individual skills, knowledge and expertise. A formal, comprehensive and tailored induction is given to all non-executive directors following their appointment, including access to external training courses, visits to key locations within the Group and meetings with members of the Executive Board and other key senior executives. The induction also covers a review of the Group s governance policies, structures and business, including details of the risks and operating issues facing the Group. GOVERNANCE appointed a committee of the Board to agree and to deal with matters related to the half year ended 31 March 2017 and also the Shareholder Return and Share Capital Consolidation, including approval of the interim accounts prepared in accordance with section 838 of the Companies Act 2006 (CA 2006) received a presentation from a senior colleague regarding the Group s DACH business (Germany, Austria and Switzerland) JUNE 2017 review of HSE performance review of financial performance attended the General Meeting related to the 1 billion Shareholder Return and Share Capital Consolidation, which was approved by shareholders on 7 June 2017 and subsequently completed on 17 July 2017 JULY 2017 review of HSE performance review of financial performance update on the Shareholder Return and Share Capital Consolidation received a business review from senior colleagues of the Group s Iberian business (Spain and Portugal) including a review of the demographics of the Iberian geographies, macroeconomics, sectoral mix, revenue and profit projections and a preview of a video used by the Spanish business to raise HSE awareness amongst colleagues reviewed the outcome of the internal Board evaluation which took place in May 2017 treasury update and financing proposal for from the Head of Group Treasury, including a summary of key policies and the control framework tax update from the Head of Group Tax SEPTEMBER 2017 review of HSE performance review of financial performance reviewed and agreed the budget and three year plan covering matters such as revenue trends across geographies, the impact of foreign exchange, cashflow and likely capital investment annual litigation update from the Group General Counsel and Company Secretary considered the Group s biannual major risk assessment review review of the Canteen vending business in the USA Business & Industry sector update 51

54 GOVERNANCE AND DIRECTORS REPORT CORPORATE GOVERNANCE CONTINUED Succession planning is a matter for the whole Board, rather than for a committee. The Company s Articles of Association provide that one third of the directors retire by rotation each year and that each director will seek re-election at the AGM every three years. However, in accordance with the Code, all directors submit themselves for annual re-election by shareholders. New directors may be appointed by the Board, but are subject to election by shareholders at the first opportunity after their appointment. The Articles of Association limit the number of directors to not less than two and not more than 20, save where shareholders decide otherwise. Non-executive directors are normally appointed for an initial term of three years, which is reviewed and may be extended by two further three year terms. It is Board policy that non-executive director appointments should last for no more than nine years. All of our shareholders are invited to attend our AGM which provides a forum in which shareholders can put questions to the Board and the committee chairmen. It also provides shareholders with an opportunity to meet with directors on a more informal basis after the meeting. Don Robert acts as the SID. His role includes providing a sounding board for the Chairman and acting as an intermediary for the non-executive directors, where necessary. The Board believes that Don has the appropriate experience, knowledge and independence to continue in this role. There were a number of changes made to the composition of the Board during the year. On 21 September 2017, we announced that Dominic Blakemore would become Deputy Group Chief Executive with effect from 1 October Dominic will succeed Richard Cousins as Group Chief Executive on 1 April 2018 and Richard will retire from the Group on 30 September of the same year. On 2 February 2017, Susan Murray retired from the Board having completed her nine year tenure as a non-executive director and was succeeded as Chairman of the Corporate Responsibility Committee by Nelson Silva. MAINTAINING A DIALOGUE WITH SHAREHOLDERS The Chairman ensures that the Board maintains an appropriate dialogue with shareholders. The Group Chief Executive, Group Finance Director and the Investor Relations and Corporate Affairs Director regularly meet with institutional investors to discuss strategic issues and to make presentations on the Company s results. As well as full and half year results and quarterly trading updates, the Company publishes Regulatory News Service announcements through the London Stock Exchange and runs an active investor relations engagement programme. The Group General Counsel and Company Secretary also acts as an important focal point for communications on corporate governance matters throughout the year, but with a particular intensity leading up to, during and after shareholder meetings. The Company s website provides an excellent means of communicating with and receiving communications from shareholders, potential investors and the wider stakeholder community. The website contains an archive of information on the Company s history, leadership, governance, policies, financial results, dividend history and up to date share price information. Although the non-executive directors are not formally required to meet the shareholders of the Company, their attendance at presentations of the interim and annual results is encouraged. The Board would like to thank all those shareholders who took time to attend shareholder meetings during the year. The Notice of Meeting for the 2018 AGM, which is due to be held on Thursday 8 February 2018 at Twickenham Stadium, can be found on pages 185 to 194. We look forward to seeing you there. BOARD EFFECTIVENESS The Chairman is responsible, with assistance from the Nomination Committee, for ensuring that the Company has an effective Board with a suitable range of skills, expertise and experience. Every year, a performance evaluation of the Board and its committees is carried out to ensure that they continue to be effective, that each of the directors demonstrates commitment to his or her respective role and has sufficient time to meet his or her commitment to the Company. An independent external evaluation was conducted by EquityCommunications Limited (ECL) in May 2016 in line with the mandated triennial external requirement set out in the Code. This was the second occasion on which ECL had conducted an independent, externally facilitated Board evaluation. The 2016 evaluation undertaken by ECL took the form of one-on-one interviews with all members of the Board and the Group General Counsel and Company Secretary. It covered questions about Board administration, strategy and operations, Board composition, committee structure and succession planning. ECL s report on the outcome of the evaluation was presented to the Board at its September 2016 meeting and was summarised in the 2016 Annual Report and Accounts. This year, an internal performance evaluation was conducted by the Chairman and the Group General Counsel and Company Secretary, taking into account the principal themes which had emerged from the preceding external evaluation, notably, the increasing contribution of the newer non-executive directors to utilise their skill sets for the greater benefit of the Group. 52

55 The recruitment of future non-executive directors and their need for PLC experience was also considered to be important with a view to replenishing the extensive PLC experience that will be lost in the medium term as non-executive directors reach their nine year maximum tenures. The 2016 Report noted that the then prospective retirement of Susan Murray would present a challenge as it would mean that the Company was some way short of achieving the latest voluntary target set by Lord Davies to have 33% female representation on the Board by 2020 and this would need to be given close consideration when recruiting a new director. Prior to making an appointment, the Nomination Committee evaluates the balance of skills, knowledge, independence, experience and diversity on the Board and, in light of this evaluation, will prepare a description of the role and capabilities required, with a view to making a recommendation to the Board of the best placed individual for the role. However, the Board and the Nomination Committee will take the 2020 target set by Lord Davies, as well as Sir John Parker s initial recommendations on diversity, into consideration when recruiting future directors. It is the view of the Board that each of the non-executive directors brings considerable management expertise and an independent perspective to the Board s deliberations and that they are considered to be independent of management and free from any relationship or circumstance that could affect, or appear to affect, the exercise of their independent judgement. Overall, the Board considered the performance of each director to be effective and concluded that both the Board and its committees continue to provide effective leadership and exert the required levels of governance and control. The Board will continue to review its procedures, effectiveness and development in the year ahead. CONFLICTS OF INTEREST As part of their ongoing development, the executive directors may seek one external non-executive role on a non-competitor board, for which they may retain the remuneration in respect of the appointment. In order to avoid any conflict of interest, all appointments are subject to Board approval and the Board monitors the extent of directors other interests and the time commitment required to fulfil those interests to ensure that its effectiveness is not compromised. Each director has a duty under the CA 2006 to avoid a situation in which he or she has or can have a direct or indirect interest that conflicts or possibly may conflict with the interests of the Company. This duty is in addition to the obligation that he or she owes to the Company to disclose to the Board an interest in any transaction or arrangement under consideration by the Company. The Company s Articles of Association authorise the directors to approve such situations and to include other provisions to allow conflicts of interest to be dealt with. The Board follows an established procedure when deciding whether to authorise an actual or potential conflict of interest. Only independent directors (i.e. those who have no interest in the matter under consideration) will be able to make the relevant decision and, in making the decision, the directors must act in good faith and in a way they consider will be most likely to promote the Company s success. Furthermore, the directors may, if appropriate, impose limits or conditions when granting authorisation. Any authorities are reviewed at least every 15 months. The Board considered and authorised each director s reported actual and potential conflicts of interest at its July 2017 Board meeting and considers any changes on an ad hoc basis throughout the year. COMMITTEES OF THE BOARD As noted on page 44, the Board has established a number of committees to assist in the discharge of its duties. The formal terms of reference for the principal committees, approved by the Board and complying with the Code, are available from the Group General Counsel and Company Secretary and can also be found at Terms of reference are reviewed annually by their respective committees and updated when necessary to reflect changes in legislation or best practice. Directors who are not members of individual Board committees may be invited to attend one or more meetings of those committees during the year. The Group General Counsel and Company Secretary acts as Secretary to all Board committees. The chairmen of each of the principal committees attend the AGM to respond to any shareholder questions that might be raised on a committee s activities. In addition to the principal committees, the Board has established the following committees: DISCLOSURE COMMITTEE The Disclosure Committee ensures the accuracy and timeliness of public announcements of the Company and monitors the Company s obligations under the UKLA Rules and the DGTR. Meetings are held as required. At the date of this Report, the Disclosure Committee comprises Johnny Thomson, Group Finance Director; Mark White, Group General Counsel and Company Secretary; the Group Financial Controller; the Director of Group Internal Audit; the Group Director of Strategy and the Investor Relations and Corporate Affairs Director. EXECUTIVE BOARD The Executive Board is the key management committee for the Group and, at the date of this Report, comprises the executive directors of the Company and Robin Mills (Group HR Director); Sandra Moura (Investor Relations and Corporate Affairs Director); Alfredo Ruiz Plaza (Regional Managing Director, Latin America); Mark van Dyck (Regional Managing Director, Asia Pacific); and Mark White (Group General Counsel and Company Secretary). The Executive Board meets regularly and is responsible for developing the Group s strategy, capital expenditure and investment budgets. It reports on these areas to the Board for approval, implementing Group policy, monitoring health and safety, financial, operational and customer quality of service performance, purchasing and supply chain issues, succession planning and day to day management of the Group. GENERAL BUSINESS COMMITTEE The General Business Committee comprises all of the executive directors and meets as required to conduct the Company s business within clearly defined limits delegated by the Board and subject to those matters reserved to the Board. AUDIT COMMITTEE PAGE 54 CORPORATE RESPONSIBILITY COMMITTEE PAGE 62 NOMINATION COMMITTEE PAGE 65 REMUNERATION COMMITTEE PAGE 68 GOVERNANCE 53

56 GOVERNANCE AND DIRECTORS REPORT AUDIT COMMITTEE REPORT Overseeing rigorous and effective controls The Board recognises that a prudent and robust approach to risk mitigation must be carefully balanced with a degree of flexibility so that the entrepreneurial spirit which has greatly contributed to the success of your Company is not inhibited. As part of our internal audit process, we continue to increase the use of technology to perform analysis in large populations of data and embed analytics in every phase of the audit process. We are using analytics to select samples, ask the right questions, identify exceptions and share with management those analyses that can help them to monitor and provide insights to our business. During the year, audits were conducted by the external auditor covering businesses which generated 96% of the Group s annual revenue for As Chairman of the Audit Committee and as a fellow shareholder, I am pleased to report that the external auditor has issued an unmodified audit opinion. DEAR SHAREHOLDER On behalf of the Board, I am pleased to present the Audit Committee s Report for the financial year ended 30 September In the pages which follow we give an insight into the activities and workings of the Committee during the year. AREAS OF FOCUS As in previous years, our primary focus has been centred on key issues related to the Group s financial reporting, such as accounting judgements, internal control activities, compliance matters and the ongoing quality of related disclosures. We have also covered other important areas, such as a review of the Company s Viability and Going Concern Statements, and performed the related financial stress testing in order to meet the requirements of the Code. NON-FINANCIAL REPORTING INFORMATION Earlier this year, the EU Non-Financial Reporting Directive was implemented into English law as the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations The Directive requires companies with financial years beginning on or after 1 January 2017 to disclose non-financial information necessary to provide investors and other stakeholders with a better understanding of a company s development, performance and position and impact of its activity. The Committee was able to offer advice to the Board on the reporting requirements of the Directive and will ensure that the Company is compliant with the Directive and includes the necessary disclosures in the 2018 Annual Report. EXTERNAL AUDITOR Mr Sykes has been the key senior audit engagement partner since KPMG LLP (KPMG) was appointed as the Company s external auditor in 2014 and will therefore rotate off the Company s audit after the completion of the external audit of the Company s financial statements for the year ending 30 September To ensure a seamless transition, the Committee will oversee the succession from Mr Sykes as part of the audit process for the year ending 30 September The external auditor timeline can be found on page

57 RISK APPETITE, PRINCIPAL OPERATIONAL RISKS AND RISK ASSURANCE The Board s attitude to and appetite for risk are communicated to the Group s businesses through the strategy planning process. In determining its risk appetite, the Board recognises that a prudent and robust approach to risk mitigation must be carefully balanced with a degree of flexibility so that the entrepreneurial spirit which has greatly contributed to the success of the Company is not inhibited. The Committee and the Board remain satisfied that the Company s internal risk control framework continues to provide the necessary element of flexibility without compromising the integrity of risk management and internal control systems. We continue to develop and grow our business but, of course, in some of the territories where we operate, the concept of corporate governance is still underdeveloped. In these regions in particular, it is important to have a clear, well-established system of risk management and internal control to ensure that growth is underpinned by solid business practice. In this regard, we have continued to strengthen our Regional Governance Committees (RGCs) with the aim of further embedding the Group s risk management culture within the business. In 2016, the Board established a Group Risk Management Committee (RMC) to assist the Audit Committee with its work. RMC membership comprises a multi-disciplinary team of key individuals who are involved with the day to day governance of the Group. The Chairman of the Committee is the Group Finance Director and the membership comprises the Group General Counsel and Company Secretary, the Director of Group Internal Audit, the Investor Relations and Corporate Affairs Director, the Group HR Director and the Group Director of Strategy. The Committee is satisfied that the work being performed by the RMC, in conjunction with the efforts of their colleagues in the Group s RGCs, further embeds the Group s risk management culture within the business. It also provides an additional layer of oversight to help underpin the assurances given by the Committee to the Board in connection with the appropriateness of the Group s financial reporting; the effectiveness of the internal and external audit functions; the management of the Group s systems of internal control and business risks; and related compliance activities. The Committee had oversight of a robust annual review and assessment of the principal risks and uncertainties of the Group. The review was conducted internally by a multi-disciplinary team. The purpose of the review was to determine in the context of the macroenvironment and Group strategy: (i) if the principal risks and uncertainties disclosed in the 2016 Annual Report applied to the current financial year; (ii) if yes, whether there had been any year on year variance to the status of each risk; (iii) if no, what should be taken out/included? As set out in the Principal Risks section on pages 34 to 36, last year s risks continue to be pertinent, albeit that our perception of how these risks have, as appropriate, remained static, increased or diminished may have changed. The Committee continues to monitor the potential impact of the UK s decision to leave the EU. However, while there is still significant uncertainty about the withdrawal process, its timeframe and the outcome of negotiations about future arrangements between the UK and the EU, it is still too early to properly understand the impact on the business. We are also closely monitoring the political landscape in the USA where the Group has a significant operational presence. The new administration has signalled its intention to make broad policy changes, some of which are in respect of trade and tax, and we will continue to assess the impact of any changes and the extent to which they are passed. FAIR, BALANCED AND UNDERSTANDABLE The Code provides that through its financial reporting, the Board should provide a fair, balanced and understandable assessment of the Company s prospects. At the Board s request, the Committee has reviewed the 2017 Annual Report to determine whether it considered that the document, taken as a whole, meets this standard and provides the information necessary for shareholders to assess the Company s position and performance, business model and strategy. The Committee has concluded that this requirement has been met. On pages 26 and 27 and throughout this Report, we track our performance against a mix of financial and non-financial KPIs, which the Board and executive management consider best reflect our strategic priorities. The Committee has considered these KPIs and is satisfied that the information that has been selected by the Board and the executive management will help to convey an understanding of the culture of the business and the drivers which contribute to its ongoing success and will be of interest to stakeholders. THE YEAR AHEAD The Committee continues to play a key role within the governance framework and, in the year ahead, the Committee will continue to monitor the ongoing status and progress of action plans against key risks on a regular basis; review its activities in the light of regulatory and best practice developments; and report its findings to the Board. John Bason Chairman of the Audit Committee 21 November 2017 GOVERNANCE 55

58 GOVERNANCE AND DIRECTORS REPORT AUDIT COMMITTEE REPORT CONTINUED THE AUDIT COMMITTEE COMPOSITION The Audit Committee comprises John Bason, Chairman, and all of the non-executive directors in office at the date of this Report. Members of the Audit Committee are appointed by the Board following recommendation by the Nomination Committee. The Audit Committee s membership is reviewed by the Nomination Committee and is assessed in the context of the range of skills, knowledge and experience required by the Code and also as part of the annual Board performance evaluation. The members of the Audit Committee have been chosen to provide the wide range of financial and commercial experience needed to undertake its duties and each member of the Audit Committee brings an appropriate balance of senior level financial and commercial experience in multinational and/or complex organisations, combined with a sound understanding of the Company s business, and is therefore considered by the Board to be competent in the Company s sector. The expertise and experience of the members of the Audit Committee are summarised on pages 48 and 49. The Board considers that each member of the Audit Committee is independent within the definition set out in the Code and is capable of assessing the work of management and the assurances provided by the internal and external audit functions. The Audit Committee s Chairman, John Bason, is the Finance Director of Associated British Foods plc and is therefore considered by the Board to have significant, recent and relevant financial experience and to be competent in auditing and accounting. All members of the Audit Committee receive an appropriate induction, covering the role and remit of the Committee and an overview of the business, its financial dynamics and its risks and, where appropriate, meetings with key individuals. Audit Committee members are expected to have an understanding of the principles of, and recent developments in, financial reporting, including the applicable accounting standards and statements of recommended practice, key aspects of the Company s policies, financing, internal control mechanisms, and matters that require the use of judgement in the presentation of accounts and key figures as well as the role of internal and external auditors. Members of the Audit Committee undertake ongoing training as required. The Audit Committee meets throughout the year and its agenda is linked to events in the Company s financial calendar. Each member of the Audit Committee may require reports on matters of interest in addition to the regular items. The Audit Committee met three times during the year with an appropriate interval between each of the meetings to ensure that work arising from Committee meetings could be carried out and reported back to the Board, as appropriate. Members attendance at the meetings is set out in the table. MEETINGS ATTENDANCE NAME ATTENDANCE 1 John Bason 3 of 3 Carol Arrowsmith 3 of 3 Stefan Bomhard 3 of 3 Susan Murray 2 1 of 1 Don Robert 3 of 3 Nelson Silva 3 of 3 Ireena Vittal 3 of 3 1. The number of meetings attended out of the number of meetings each director was eligible to attend. 2. Stepped down from the Board and its committees at the conclusion of the Company s AGM on 2 February The Audit Committee invites Paul Walsh, Chairman; Richard Cousins, Group Chief Executive; Johnny Thomson, Group Finance Director; the Group Financial Controller; and the Director of Group Internal Audit, together with senior representatives of the external auditor, to attend each meeting although, periodically, it reserves time for discussions without invitees being present. Other senior management are invited to present such reports as are required for the Audit Committee to discharge its duties. The Chairman of the Audit Committee keeps in touch with key individuals involved with the Company s governance, including the Group Chief Executive, Group Finance Director, the Group General Counsel and Company Secretary, the Director of Group Internal Audit and the external auditor s lead engagement partner, and attends the AGM to respond to any shareholder questions that might be raised concerning its activities. The remuneration of the members of the Audit Committee and the policy with regard to the remuneration of the non-executive directors are set out on pages 83 and 93. OBJECTIVES The Audit Committee s key objectives are the provision of effective governance over the appropriateness of the Group s financial reporting, including the adequacy of related disclosures, the performance of both the internal and external audit functions, and the management of the Group s systems of internal control, business risks and related compliance activities. ACTIVITY DURING THE YEAR The key matters reviewed and evaluated by the Audit Committee during the year are set out below: Financial reporting the appropriateness of the interim and annual financial statements (including the announcements thereof to the London Stock Exchange) with both management and the external auditor, including: at the Board s request, whether the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company s position and performance, business model and strategy the clarity of disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements and guidelines, including the European Securities and Markets Authority Guidelines on Alternative Performance Measures which have applied to all publications of regulated information since 3 July

59 discussing the critical accounting policies and use of assumptions and estimates, as noted in section B of the accounting policies on pages 113 and 114 of this Annual Report, and concluding that the estimates, judgements and assumptions used were reasonable based on the information available and had been used appropriately in applying the Company s accounting policies. This included, for example, the consideration of any goodwill impairment assessments and how these were addressed the material areas in which significant judgements have been applied, namely: considering the nature and quantum of the purchasing income earned by the Group during the financial year. It also assessed the extent to which the amounts recognised required estimation and reviewed the recoverability of amounts accrued at the year end with reference to aged analyses and subsequent cash receipts. Nothing arose during the course of this review to indicate that anything but limited judgement was required, or that purchasing income had not been accounted for in accordance with the Group s accounting policies the level of provisioning for liabilities (including tax) where management, accounting and legal judgements are important. The Committee discussed with management the key judgements made, in particular, the policy efforts being led by the EU and OECD which may have a material impact on the taxation of all international businesses, including relevant legal advice. The external auditor also reports on all material provisions to the Committee the Going Concern and Viability Statements non-financial information OTHER MATTERS In addition to its key role in the financial reporting process, the Audit Committee also considered the following as well as developments in regulation, such as in relation to the retendering of audit services: GOVERNANCE ITEMS DISCUSSED INTERNAL AUDIT approval of the Group s internal audit plan, risk controls and the review of internal audit activity reports and updates consideration of Group internal audit s review of key financial controls and rollout of key IT controls EXTERNAL AUDIT audit report on interim results approval and review of the proposed audit plan and procedures review of auditor effectiveness/independence following KPMG s third year as external auditor agreement of external auditor fees for review of the policy and update of the provision of non-audit services provided by the external auditor assessment of the deployment of the audit plan OTHER MATTERS litigation and contingent liabilities triennial actuarial valuation of the Group s UK post retirement obligations operation of the Group s Speak Up whistleblowing policy country and theme specific audit matters the RGC structure and the outputs from committee meetings tax matters, including provisioning for potential current tax liabilities and the level of deferred tax asset recognition as well as compliance with statutory tax reporting obligations certificates of assurance from local management terms of reference: annual review NOV 2016 MAY 2017 SEPT

60 GOVERNANCE AND DIRECTORS REPORT AUDIT COMMITTEE REPORT CONTINUED FRC REVIEW OF THE ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 30 SEPTEMBER 2016 During the year, the Group received a letter from the FRC confirming that the Annual Report for the year ended 30 September 2016 had been subject to review by its Conduct Committee, which is responsible for reviewing and investigating the annual accounts, directors and strategic reports of UK public companies. The only substantive question included in this enquiry was a request for the Company to provide further details supporting the recognition of the accounting surplus of the UK defined benefit pension scheme (see note 20). As a result of the FRC s enquiry, we committed to providing additional disclosures on the nature of the UK defined benefit pension scheme's accounting surplus and the rationale for its recognition (see page 118). The FRC s enquiry closed with no further questions. The FRC noted that its role was not to verify information, but to consider compliance with reporting requirements, and it did not take responsibility for reliance on its letter by any party. EXTERNAL AUDITOR KPMG has been the Company s auditor since In line with applicable legislation and best practice, no one can act as an engagement partner for a listed company for more than five years and, thereafter, there has to be a five year gap before the same individual can undertake that role in the Company. As noted on page 54, Mr Sykes will cease to be the senior audit engagement partner on completion of the audit of the Company s financial statements for the year ending 30 September 2018 and the Committee will oversee the transition to Mr Sykes successor. To ensure objectivity, key members of the audit team rotate off the Company s audit. To safeguard the independence of the Company s external auditor and the integrity of the audit process, the recruitment of senior employees from the Company s auditor is not permitted for a period of at least two years after they cease to be involved in the provision of services to the Company. The Company is required to tender its auditors every 10 years and the Committee currently intends to tender its auditors sometime in with a view to the chosen firm being appointed in EXTERNAL AUDIT The Audit Committee is responsible for the development, implementation and monitoring of the Company s policy on external audit. The Committee reserves oversight responsibility for monitoring the auditor s independence, objectivity and compliance with ethical, professional and regulatory requirements. The Audit Committee is responsible for the retendering selection process and recommends the appointment, reappointment and removal of the Company s external auditor, and considers the risks associated with its withdrawal from the market in its risk evaluation and planning. The Audit Committee also reviews and sets the terms, areas of responsibility and scope of the audit as set out in the external auditor s engagement letter; the overall work plan for the forthcoming year, together with the associated fee proposal and cost effectiveness of the audit; the external auditor s independence; any major issues which arise during the course of the audit and their resolution; key accounting and audit judgements; the level of errors identified during the audit; the recommendations made to management by the auditor and management s response; and the auditor s overall performance. The Company operates a policy on non-audit fees which it reviews annually and discloses the ratio of audit to non-audit fees paid in each financial year. The Audit Committee monitors the extent of non-audit work which the external auditor can perform, to ensure that the provision of those non-audit services that can be undertaken by the external auditor falls within the agreed policy and does not impair its objectivity or independence. Following the change of external auditor in 2014, the Committee agreed that Deloitte LLP should continue to provide tax services to the Group and has amended its policy on the provision of non-audit services by the external auditor accordingly, to exclude such services. Therefore, the external auditor should be excluded from providing the Company with general consultancy and all other non-audit services, unless there is no other competent and available provider. Engagements for non-audit services that are not prohibited are subject to formal approval by the Audit Committee based on the level of fees involved. Non-audit services that are pre-approved are either routine in nature with a fee that is not significant in the context of the audit or are audit related services. Within the constraints of applicable UK rules, the external auditor has traditionally undertaken some due diligence reviews and other pieces of non-audit work. The provision of non-audit services within such constraints and the agreed policy is assessed on a case by case basis so that the best placed advisor is retained. Principal non-audit services provided by KPMG and approved by the Audit Committee during the year ended 30 September 2017 primarily comprised assistance on audit related services. 58

61 During the year, the Audit Committee reviewed KPMG s fees for its services performed to 30 September 2017, its effectiveness and whether the agreed audit plan had been fulfilled and the reasons for any variation from the plan. The review included a formal evaluation process involving the use of questionnaires completed by finance teams around the Group. The Audit Committee also considered the robustness of the 2017 audit, the degree to which KPMG was able to assess key accounting, and audit judgements and the content of the management letter issued by the external auditor. The Audit Committee concluded that both the audit and the audit process were effective. The total fees paid to KPMG in the year ended 30 September 2017 were 5.2 million of which 0.3 million related to non-audit work (2016: 5.1 million of which 0.7 million related to non-audit work). Further disclosure of the non-audit fees paid during the year can be found in note 2 to the consolidated financial statements on page 124. FRC AUDIT QUALITY REVIEW During the year, the 2016 external audit of the Group by KPMG was reviewed by the FRC s Audit Quality Review team (AQR). The AQR routinely monitors the quality of audit work of certain UK audit firms through inspections of sample audits and related procedures at individual audit firms. The Committee and KPMG have discussed the review findings, which were incorporated into the 2017 audit work. The Committee does not consider any of the findings to have had a significant impact on KPMG s audit approach. REAPPOINTMENT OF AUDITOR There are no contractual restrictions on the Company s choice of external auditor and in making its recommendation to shareholders on the reappointment of KPMG, the Committee took into account, amongst other matters, the tenure, objectivity and independence of KPMG and its continuing effectiveness and cost as well as the availability of firms within the wider audit market. KPMG has expressed its willingness to continue as auditor of the Company. Separate resolutions proposing KPMG s reappointment and determination of its remuneration by the Audit Committee will be proposed at the 2018 AGM. PREVIOUS EXTERNAL AUDITOR FIVE YEAR TERM OF CURRENT SENIOR AUDIT ENGAGEMENT PARTNER EXTERNAL AUDITOR TIMELINE Final Audit Deloitte LLP carry out final audit in respect of year ended 30 September 2013 AGM 6 February Approval sought for the reappointment of Deloitte LLP Reappointment of Deloitte LLP as external auditor Casual vacancy filled 14 March KPMG LLP appointed to fill the casual vacancy in the office of external auditor Appointment of KPMG LLP senior audit engagement partner AGM 5 February Approval sought for the reappointment of KPMG LLP Reappointment of KPMG LLP as external auditor AGM 4 February Approval sought for the reappointment of KPMG LLP Reappointment of KPMG LLP as external auditor AGM 2 February Approval sought for the reappointment of KPMG LLP Reappointment of KPMG LLP as external auditor. Review underway for senior audit engagement partner rotation GOVERNANCE 2018 AGM 8 February Approval sought for the reappointment of KPMG LLP KPMG LLP senior audit engagement partner carries out final audit in respect of the year ending 30 September 2018 and the Committee oversees the transition to successor 59

62 GOVERNANCE AND DIRECTORS REPORT AUDIT COMMITTEE REPORT CONTINUED DISCLOSURE OF RELEVANT AUDIT INFORMATION The directors confirm that, so far as they are each aware, there is no relevant audit information of which KPMG is unaware and each director has taken all the steps that ought to have been taken as a director to be aware of any relevant audit information and to establish that KPMG is aware of that information. OUR STANDARDS The Company remains committed to the highest standards of business conduct and expects all of its employees to act accordingly. The Group s Speak Up policy (an extension of the Code of Ethics incorporated within the Group s Code of Business Conduct (CBC) which is available in 40 languages) sets out arrangements for the receipt, in confidence, of complaints on accounting, risk issues, internal controls, auditing issues and related matters which would, as appropriate, be reported to the Audit Committee. Speak Up is a standard review item on all internal audit work programmes. The CBC and Code of Ethics are available on the Company s website at The Corporate Responsibility Committee retains overall responsibility for the Group s CBC programme, the training of employees and the way in which management obtain assurance in this area, including the annual self certification process which saw more than 3,500 employees confirm their continued compliance with the CBC and the Code of Ethics in the year ended 30 September The Audit Committee also receives updates on any allegations of bribery and fraud in the business at every meeting, with individual updates being given to the Audit Committee, as needed, in more serious cases of alleged bribery, fraud or related activities. The Group s theft and anti-fraud policies are a subset of the CBC, which does not tolerate any activity involving fraud, dishonesty or deception. These policies, for which the Audit Committee retains overall responsibility, set out how allegations of fraud or bribery are dealt with, such as by the local human resources or finance team, and the frequency of local reporting that feeds into the regular updates, which are presented to the Audit Committee. Reporting of these matters to the Audit Committee is managed and overseen by the internal audit function. The Speak Up policy operates when the complaint is received through the whistleblowing channel and that policy will redirect the alleged fraud or bribery for investigation at the most appropriate level of the organisation which may, for example, be by a member of the local human resources team or, on occasion, the Audit Committee itself. Each year, the Audit Committee critically reviews its own performance and considers where improvements can be made and in so doing it considers, amongst other things, those matters discussed by the Audit Committee, such as: whether the membership of the Committee meets the requirements of the Code whether the Committee s terms of reference are appropriate for the particular circumstances of the Company and comply with prevailing legislation and best practice whether the number and length of time of Committee meetings are sufficient to meet the role and responsibilities of the Committee and coincide with key dates within the financial reporting and audit cycle This is underpinned by the annual evaluation of the Board and its committees. More details of this year s review can be found on pages 52 and 53. INTERNAL AUDIT The Audit Committee reviews the effectiveness of the Group s internal audit function and its relationship with the external auditor, including internal audit resources, plans and performance as well as the degree to which the function is free of management restrictions. Throughout the year, the Audit Committee reviewed the internal audit function s plans and its achievements against those plans. The Audit Committee considered the results of the audits undertaken by the internal audit function and the adequacy of management s response to matters raised, including the time taken to resolve any such matters. INTERNAL CONTROL The Audit Committee also reviews the integrity of any material financial statements made by the Company. It monitors and conducts a robust review of the effectiveness of the Group s internal control systems, accounting policies and practices and compliance controls (including key financial controls) as well as the Company s statements on internal control before they are agreed by the Board for each year s Annual Report. The Board retains overall responsibility for internal control and the identification and management of business risk and is assisted in this regard by a top down and bottom up process of risk identification and management which is the subject of regular interim review by RGCs. The key features of the Group s internal control and risk management systems that ensure the accuracy and reliability of financial reporting include clearly defined lines of accountability and delegation of authority, policies and procedures that cover financial planning and reporting, preparing consolidated accounts, capital expenditure, project governance and information security and the Group s CBC. The internal audit function is involved in the assessment of the quality of risk management and internal control and helps to promote and further develop effective risk management within the business. Certain internal audit assignments (such as those requiring specialist expertise) continue to be outsourced by the Director of Group Internal Audit as appropriate. The Audit Committee reviews internal audit reports and considers the effectiveness of the function. In a Group where local management have considerable autonomy to run and develop their businesses, a well designed system of internal control is necessary to safeguard shareholders investments and the Company s assets. The directors acknowledge that they have overall responsibility for risk management, the Group s systems of internal control, for reviewing the effectiveness of those controls and for ensuring that an appropriate culture has been embedded throughout the organisation. In accordance with the guidance set out in the FRC s Guidance on Risk Management, Internal Control and Related Financial Business Reporting 2014, and in the Code itself, an ongoing process has been established for identifying, managing and evaluating the risks faced by the Group. This process has been in place for the full financial year and up to the date on which the financial statements were approved. 60

63 The systems are designed to manage rather than eliminate the risk of failure to achieve the Group s strategic objectives, safeguard the Group s assets against material loss, fairly report the Group s performance and position, and to ensure compliance with relevant legislation, regulation and best practice including that related to social, environmental and ethical matters. The systems provide reasonable, but not absolute, assurance against material misstatement or loss. Such systems are reviewed by the Board to deal with changing circumstances. A summary of the key financial risks inherent in the Group s business is given on pages 34 to 36. Risk assessment and evaluation are an integral part of the annual planning cycle. Each business documents the strategic objectives and the effectiveness of the Group s systems of internal control. As part of the review, each significant business and function has been required to identify and document each substantial risk, together with the mitigating actions implemented to manage, monitor and report to management on the effectiveness of these controls. Senior managers are also required to sign biannual confirmations of compliance with key procedures and to report any breakdowns in, or exceptions to, these procedures. Summarised results are presented to senior management (including to the RGCs) and to the Board. These processes have been in place throughout the financial year ended 30 September 2017 and have continued to the date of this Report. Taken together, these processes and the reports they generate, which are considered by the Audit Committee, constitute a robust assessment of key risks and the internal controls that exist, and are designed to mitigate these risks. The Board has reviewed the effectiveness of the Group s system of internal control for the year under review and a summary of the principal control structures and processes in place across the Group is set out in this Report. CONTROL ENVIRONMENT Whilst the Board has overall responsibility for the Group s system of internal control and for reviewing its effectiveness, it has delegated responsibility for the operation of the internal control and risk management programme to the Executive Board. The detailed review of internal control has been delegated to the Audit Committee. The management of each business is responsible for internal control and risk management within its own business and for ensuring compliance with the Group s policies and procedures. Each business has appointed a risk champion whose primary role in such capacity is to ensure compliance by local management with the Group s risk management and internal control programme. The internal and external independent auditors have reviewed the overall approach adopted by the Group towards its risk management activities so as to reinforce these internal control requirements. CONTROL PROCEDURES The Board reviews its strategic plans and objectives on an annual basis and approves Group budgets and strategies in light of these. Control is exercised at Group, regional and business level through the Group s MAP framework (as well as through the RGCs), monthly monitoring of performance by comparison with budgets, forecasts and cash targets, and by regular visits to Group businesses by the Group Chief Executive, Group Finance Director and Group Chief Operating Officers. This is underpinned by a formal major risk assessment process, which is an integral part of the annual business cycle and is also a robust process adopted to support the Viability Statement. Each of the Group s businesses is required to identify and document major risks facing their business and appropriate mitigating activities and controls, and to monitor and report to management on the effectiveness of these controls on a biannual basis. These reports, together with reports on internal control and departures, if any, from established Group procedures prepared by both the internal and external auditors, are reviewed by the Group Finance Director and the Audit Committee. Group companies also submit biannual risk and internal control assurance letters to the Group Finance Director on internal control and risk management issues, with comments on the control environment within their operations. The Group Finance Director summarises these submissions for the Audit Committee, and the Chairman of the Audit Committee reports to the Board on any matters that have arisen from the Audit Committee s review of the way in which risk management and internal control processes have been applied. The Board has formal procedures in place for the approval of client contracts, capital investment and acquisition projects, with clearly designated levels of authority, supported by post investment review processes for selected acquisitions, client contracts and major capital expenditure. The Board considers social, environmental and ethical matters in relation to the Group s business and assesses these when reviewing the risks faced by the Group; further information regarding environmental and ethical matters is available on pages 37 to 41. The Board is conscious of the effect such matters may have on the short and long term value of the Company. The external auditor of the Company and the Director of Group Internal Audit attend Audit Committee meetings and receive its papers. Committee members meet regularly with the external auditor and with the Director of Group Internal Audit, without the presence of executive management. There were no changes to the Company s internal control over financial reporting that occurred during the year ended 30 September 2017 that have affected materially, or are reasonably likely to affect materially, the Company s internal control over financial reporting. GOVERNANCE 61

64 GOVERNANCE AND DIRECTORS REPORT CORPORATE RESPONSIBILITY COMMITTEE REPORT Building on our commitments Part of our ethos is being a responsible partner and this year we have continued to make progress in our efforts to create a more sustainable business. The wellbeing of our colleagues around the world is important to us. We have long been building on our Safety First programme and awareness campaigns which continue to focus both management and frontline colleagues attention on reducing risk and injury at work. A positive safety culture has been further reinforced by linking key metrics to the bonus outcomes of our global leadership team. We are actively piloting innovative programmes to encourage more inspirational safety leadership from our management teams, as well as exploring ways in which we can use technology to improve visibility of risks and hazards within our business. DEAR SHAREHOLDER On behalf of the Board, I am pleased to present the Corporate Responsibility (CR) Committee s Report for the financial year ended 30 September This is my first statement as Chairman of the Corporate Responsibility Committee and, in the short time since I succeeded Susan Murray, I have been inspired by the hard work and enthusiasm of my colleagues. With their help, I look forward to building on the progress we have made to date. ACTIVITY DURING THE YEAR SAFETY PERFORMANCE Notwithstanding our focused efforts on building a positive safety culture which is supporting a year on year reduction in our lost time incident frequency rate, sadly, we had two work related fatalities in our Europe business as a result of vehicle accidents. So that we continue to make what we do safer, we have shared lessons learned from these serious events with our colleagues around the globe to try to prevent similar events from happening again. During the year, we have been working with the British Safety Council and exploring best practice within our own business related to transport safety. We have introduced improved global policy standards and colleague engagement materials designed to boost employee awareness of the potential risks resulting from unsafe driving behaviour. You can view our policy and see examples of our engaging employee awareness campaign at GOVERNANCE The Committee also addressed a number of governance matters and received updates from the Group General Counsel and Company Secretary on new developments in corporate governance and reporting, and considered recommendations to the Board concerning these matters. SUPPLY CHAIN INTEGRITY We continue to make steady progress in advancing our sustainable business practices, including supply chain integrity. Maintaining a visible and transparent supply chain is important for us, our clients and the millions of consumers that we serve every day. People expect our sourcing practices to be aligned to those of a responsible business partner. We want to do the right thing and to demonstrate progress against the public commitments we ve made to be an ethical and sustainable organisation. We moved forward with the roll out of our Global Supply Chain Integrity Standards which we hope, in time, will be the industry leading standards that set the benchmark for our sector. I am particularly proud of the progress being made related to farm animal welfare in our supply chain. This year, we appointed an executive sponsor to help shape our farm animal welfare policy. This policy and its supporting standards are part of a clear road map to help drive continuous improvement in our sourcing practices. We have more to do, but it is pleasing to see that our efforts have been acknowledged by Compassion in World Farming and the Business Benchmark on Animal Welfare, where we achieved a benchmark score of Tier 4 for We await results of the 2017 assessment and hope to improve upon last year s performance. 62

65 UNITED NATIONS (UN) SUSTAINABLE DEVELOPMENT GOALS During the year, we reassessed our suite of metrics for our sustainable business activities which included further refining our alignment with the UN Sustainable Development Goals (SDGs). END HUNGER, ACHIEVE FOOD SECURITY AND IMPROVED NUTRITION AND PROMOTE SUSTAINABLE AGRICULTURE ENSURE HEALTHY LIVES AND PROMOTE WELLBEING FOR ALL AT ALL AGES ACHIEVE GENDER EQUALITY AND EMPOWER ALL WOMEN AND GIRLS PROMOTE SUSTAINED, INCLUSIVE AND SUSTAINABLE ECONOMIC GROWTH, FULL AND PRODUCTIVE EMPLOYMENT AND DECENT WORK FOR ALL CONSERVE AND SUSTAINABLY USE THE OCEANS, SEAS AND MARINE RESOURCES FOR SUSTAINABLE DEVELOPMENT PROTECT, RESTORE AND PROMOTE SUSTAINABLE USE OF TERRESTRIAL ECOSYSTEMS, SUSTAINABLY MANAGE FORESTS, COMBAT DESERTIFICATION, AND HALT AND REVERSE LAND DEGRADATION AND HALT BIODIVERSITY LOSS STRENGTHEN AND REVITALISE THE GLOBAL PARTNERSHIP FOR SUSTAINABLE DEVELOPMENT The review helped to shape our thinking on how we challenge our own business policies, commitments and activities; measure our performance against the goals to be achieved by 2030; and address any material impacts to our business. You can find out more about our global commitments towards the 2030 goals on pages 38 to 41. SLAVERY AND HUMAN TRAFFICKING Trends towards globalisation mean that it is increasingly common for businesses to source their goods and services from different countries. This increases the task we have of maintaining transparency and makes the identification of unethical or inhumane practices in our supply chain more challenging. Those that profit from such practices go to great lengths to ensure that their criminal activities remain hidden and, consequently, it can be extremely difficult to identify such activities. This means that no business, including our own, can have absolute certainty that such activities do not exist within its business or supply chain. Despite such challenges, our position is clear: our people are the key to our continued success and we will not tolerate unethical behaviour in our own operations or within our supply chains. This year, we have extended our membership of The Supplier Ethical Data Exchange (SEDEX), a not for profit organisation dedicated to driving improvements in responsible and ethical business practices across global supply chains. It enables sharing of ethical supply chain data which allows members to access information about their suppliers in four key areas health and safety, labour standards, the environment and business ethics. We recognise that certain categories of procured products and services potentially carry a higher risk of child or slave labour being used in the supply chain. This is why we use the SEDEX data in addition to conducting independent audits, to verify labour standards and identify any poor practices within our supply base. Any supplier breaches that are uncovered via audit or any other means will be fully investigated and, where possible, remedied. Repeat breaches or those that cannot be remedied will result in the immediate termination of the relevant supplier relationship. To help us improve visibility of any potential wrongdoing, we operate a free, independent and confidential helpline called Speak Up. This enables colleagues and suppliers to raise in confidence any concerns about slavery and human trafficking, any wrongdoing or other breaches of our Code of Business Conduct. Performance data and trends from Speak Up, as well as other compliance data, are reviewed as part of our Committee meetings and those of the Audit Committee and remedial actions taken as appropriate. The Committee is comforted, but not complacent, that there have been no reports made to the helpline regarding slavery and human trafficking in the past 12 months. As signatories to the UN Guiding Principles on Business and Human Rights, one of the ways in which we have sought to build on the awareness of our colleagues is to introduce an elearning programme for our strategic procurement teams, highlighting the potential risks of human slavery and trafficking within supply chains. To date, we have trained 200 colleagues from our strategic procurement teams who account for 70% of the Group s annual global procurement spend. We will continue with this programme throughout 2018 and we are committed to extending our elearning programme to our top 20 countries, which account for the majority of our global procurement spend each year, by GOVERNANCE 63

66 GOVERNANCE AND DIRECTORS REPORT CORPORATE RESPONSIBILITY COMMITTEE REPORT CONTINUED In October 2017, we published our second Modern Slavery Act statement (MSA statement). This year, our MSA statement sets out the steps that we are taking to reduce the risk of slavery and human trafficking in our business and supply chain. The Committee recognises that this is an ongoing process and has selected five key performance indicators with the aim of demonstrating our year on year progress in this area. Our current MSA statement can be found at THE YEAR AHEAD I would like to take this opportunity to thank all of my Compass colleagues for their continued commitment and enthusiasm and I look forward to reporting on our progress next year. It s important that we continue to listen to the views of our stakeholders and use their insights to help shape our strategy and build on our achievements to date. Nelson Silva Chairman of the Corporate Responsibility Committee 21 November 2017 THE CR COMMITTEE COMPOSITION The CR Committee comprises Nelson Silva, Chairman, Paul Walsh, Richard Cousins, Johnny Thomson, Robin Mills (Group HR Director), Mark White (Group General Counsel and Company Secretary), and all of the non-executive directors in office at the date of this Report. The CR Committee meets at least twice a year. The Committee met twice during the year and members attendance is set out in the table below. MEETINGS ATTENDANCE NAME ATTENDANCE 1 Nelson Silva 2 of 2 Carol Arrowsmith 2 of 2 John Bason 2 of 2 Stefan Bomhard 2 of 2 Richard Cousins 2 of 2 Robin Mills 2 of 2 Susan Murray 2 1 of 1 Don Robert 2 of 2 Johnny Thomson 2 of 2 Ireena Vittal 2 of 2 Paul Walsh 2 of 2 Mark White 2 of 2 1. The number of meetings attended out of the number of meetings which each director/member was eligible to attend. 2. Stepped down from the Board and its committees at the conclusion of the Company s AGM on 2 February OBJECTIVES The objective of the CR Committee is to assist the Board and the Company in fulfilling its corporate responsibility in line with the Company's strategy, policies, processes and standards. RESPONSIBILITIES The Committee s primary responsibilities include health, safety and environmental practices, ethical business conduct, the promotion of employee engagement and diversity as well as community investment. The Committee has a rolling agenda and receives reports from the Director of Health, Safety and Environment and other senior managers to ensure that progress is being made towards meeting the Group s specific corporate responsibility KPIs and in our ongoing corporate responsibility commitments. We are dedicated to maintaining the highest standards of corporate governance and throughout the Annual Report there are examples of how we are endeavouring to achieve our strategic goals whilst underpinning our core values. 64

67 GOVERNANCE AND DIRECTORS REPORT NOMINATION COMMITTEE REPORT Maintaining continuity and building diversity of skills and experience Richard Cousins will retire from the Board on 31 March 2018 after nearly 12 years as Group Chief Executive. I am delighted that Richard will be succeeded by Dominic Blakemore, our former Chief Operating Officer, Europe. Dominic became Deputy Group Chief Executive Officer on 1 October 2017, and will take over as Group Chief Executive Officer on 1 April In the ensuing period, he and Richard will work closely to ensure a smooth transition. Dominic s appointment was the result of a rigorous succession process. He is exceptionally well qualified to lead the business, and has already contributed significantly to the Group, for four years as Group Finance Director and, for the past two years, managing our business in Europe. Dominic has the leadership skills combined with the industry and operational experience to lead Compass to continued future success. He also benefits from the support of a very strong senior management team and together they will continue to build on the Group s strong track record under Richard s tenure. The Board looks forward to working with Dominic in his new role. DEAR SHAREHOLDER On behalf of the Board, I am pleased to present the Nomination Committee s Report for the financial year ended 30 September Last year, I shared my thoughts with you on the resilience of the Board and its committees to respond and adapt to the changing needs of the business. Whilst succession planning is a matter for the whole Board, the Nomination Committee has an important role to play in ensuring that there is an appropriate balance of diversity, skills and experience so that the Board makes an effective contribution to the success of the Company. CEO SUCCESSION Succession planning at Board level has, and continues to be, a key area of focus for Committee discussions and activities. On 21 September 2017, we announced a significant change in the Group s Board. Richard Cousins, who has been an outstanding Chief Executive for the past 11 years, will step down from his role on 31 March 2018 and retire from the Group on 30 September It has been a huge pleasure to work with Richard and, on behalf of the Board, I want to thank him for his extraordinary contribution to the Group. Richard has transformed Compass into a sustainable, industry-leading organisation that delivers excellent food services to our customers, attracts and develops great people and generates significant returns for shareholders. The Board employs the services of executive search firms as part of the external search process to identify potential Board and senior management candidates. In preparation for the Group Chief Executive succession, the Committee considered the credentials of a number of providers before recommending the appointment of the international recruitment firm considered best placed to meet the brief. The recruitment firm chosen, Korn Ferry, was considered to be independent of, and had no other links with, the Company or its directors in connection with the brief. The candidate assessment process included the development of a success profile, an assessment of senior Compass executives and a parallel mapping of external candidates. The Committee and I managed the assessment process. The initial key element of the process was to build consensus and clarity on the major challenges and opportunities to face the next Group Chief Executive and to translate this into a profile of the ideal candidate. Internal potential successors were assessed against this profile which was also used as a yardstick against which to measure and compare possible external nominees. The profile covered four important elements of leadership: past experience, leadership competences, personality traits and individual motivations and drivers. Each of the non-executive directors, including myself, as well as Mr Cousins, completed a survey in which we selected key past experiences and leadership competencies that we all felt were important to see in the next Group Chief Executive. Interviews were also conducted with each of the contributors to gain their views on the future challenges and opportunities facing the next Group Chief Executive and, in light of that, to review their selection of experiences and competences. Directors were also asked to provide their views as to the nature of the role and culture of the Group. GOVERNANCE 65

68 GOVERNANCE AND DIRECTORS REPORT NOMINATION COMMITTEE REPORT CONTINUED A detailed success profile was then developed which was discussed and agreed by the Committee. Senior executives identified by the Board as possible successors were individually assessed. The assessment comprised the following elements: a benchmark interview of past experiences and career conducted by two executive search experts a behavioural interview of leadership competences conducted by an advisory/coaching expert completion of multiple online personality, aptitude and preference assessments an assessment of leadership potential 360 degree feedback a two day simulation exercise using a detailed case study In parallel with the assessment of the internal candidates, a detailed global scan was conducted to identify possible external nominees. Over 500 possible companies that met scale and sector criteria were identified and from that an initial set of over 100 possible nominees was created. This was refined down to a target group of 35 which was further reduced to a shortlist of 10 external potential nominees. After detailed discussions and careful debate, the Committee concluded, having taken all of the feedback into consideration, that none of the external potential nominees was sufficiently stronger than the internal senior executives. When Mr Cousins notified me of his intention to retire from the Company, the Committee was, therefore, in a position to be able to make a recommendation to the Board for his succession. The recommendation, which the Board approved, was that Dominic Blakemore should be appointed as Deputy Group Chief Executive from 1 October 2017 and that he should succeed Mr Cousins from 1 April 2018 to enable a smooth transition. OTHER CHANGES TO THE BOARD In the run up to the Company s 2017 AGM, votes were lodged by shareholders against Mrs Vittal s reappointment as a director based on concerns that she held too many other directorships such that she could not devote sufficient time to her duties at Compass. The Company sought through positive dialogue to engage and address shareholder concerns, but, unfortunately, Mrs Vittal received only 63.45% of the votes cast in favour of her re-election. On 3 February 2017, the Company issued a statement confirming that Mrs Vittal would review her portfolio and seek to reduce her number of directorships, notwithstanding that Mrs Vittal s time commitment and contribution to Compass had not been adversely affected by her other roles. Mrs Vittal has now concluded the review of her non-executive portfolio which she had agreed to undertake after the 2017 AGM. Mrs Vittal has stepped down from one of the private Indian companies of which she was a director and is in the process of relinquishing her directorships of two further public Indian companies. These will become effective by 30 June 2018, by which time she will remain a director of five Indian companies. I very much welcome Mrs Vittal s proactive review of her portfolio which I trust will address shareholders concerns about potential overboarding. Accordingly, Mrs Vittal will seek re-election as a director of the Company at the 2018 AGM. In May 2017, Stefan Bomhard completed his first full year as a non-executive director and, having completed her nine year tenure, Susan Murray stepped down from the Board at the conclusion of the Company s 2017 AGM. Mrs Murray was succeeded by Nelson Silva as Chairman of the Corporate Responsibility Committee. Mrs Murray s retirement from the Board means that we are currently falling short of the voluntary target set by Lord Davies to have 33% female representation on the Board by 2020, but this will be taken into consideration (as will the voluntary target set by Sir John Parker on diversity) by the Committee when next recruiting a director. However, our primary consideration is to have the right blend of skills, knowledge, experience and independence and for that reason, recommendations for any future appointments will continue to be made on merit. ACTIVITY DURING THE YEAR The markets in which the Company operates are intrinsically dynamic. The Board and its committees must therefore adapt and evolve to ensure that they have the optimum composition to make the most effective contribution to help the Company achieve its strategic goals. During the year, the Committee (together with the Board itself) continued to focus on succession planning for both executive and non-executive directors. In doing so, it considered the tenure, mix and diversity of skills and experience of existing Board members and those required of prospective Board members in the context of the Group s medium and long term strategy. THE YEAR AHEAD Compass has a strong Board of Directors with a broad range of experience which has driven the Company s success. The Committee and the Board believe that our directors are well qualified to further advance the interests of the Company s shareholders, as well as its employees, customers, partners and communities and that Dominic Blakemore, as Richard Cousins successor, has the leadership skills, combined with the industry and operational experience, to build on the Group s strong track record. In the year ahead we will continue to keep succession planning under review to ensure that we can retain and attract the best talent to support our corporate strategy to deliver sustainable organic growth. Paul Walsh Chairman of the Nomination Committee 21 November

69 THE NOMINATION COMMITTEE COMPOSITION The Nomination Committee comprises Paul Walsh, Chairman, Richard Cousins, Group Chief Executive and all of the non-executive directors in office at the date of this Report. The Nomination Committee meets on an as needed basis. The Committee met twice during the year and members attendance is set out in the table below. MEETINGS ATTENDANCE NAME ATTENDANCE 1 Paul Walsh 2 of 2 Carol Arrowsmith 2 of 2 John Bason 2 of 2 Stefan Bomhard 2 of 2 Richard Cousins 2 of 2 Susan Murray 2 0 of 0 Don Robert 2 of 2 Nelson Silva 2 of 2 Ireena Vittal 2 of 2 1. The number of meetings attended out of the number of meetings which each director/member was eligible to attend. 2. Stepped down from the Board and its committees at the conclusion of the Company s AGM on 2 February OBJECTIVES The Nomination Committee s key objective is to review and monitor the Board s composition and to ensure that the Board comprises individuals with the right blend of skills, knowledge and experience to maintain a high degree of effectiveness in discharging its responsibilities. RESPONSIBILITIES The Nomination Committee reviews the structure, size and composition of the Board and its committees and makes recommendations to the Board with regard to any changes considered necessary in the identification and nomination of new directors, the reappointment of existing directors and appointment of members to the Board s committees. It also assesses the roles of the existing directors in office to ensure that there continues to be a balanced board in terms of skills, knowledge, experience and diversity. The Committee reviews the senior leadership needs of the Group to enable it to compete effectively in the marketplace and advises the Board on succession planning for executive director appointments, although the Board itself is responsible for succession generally. The Nomination Committee has standing items that it considers regularly under its terms of reference; for example, the Committee reviews its own terms of reference annually, or as required, to reflect changes to the Code or as a result of changes in regulations or best practice. SUCCESSION PLANNING AND DIVERSITY The Company adopts a formal, rigorous and transparent procedure for the appointment of new directors and senior executives with due regard to diversity and gender. Prior to making an appointment, the Nomination Committee will evaluate the balance of skills, knowledge, independence, experience and diversity on the Board and, in light of this evaluation, will prepare a description of the role and capabilities required, with a view to ensuring that the best placed individual for the role is recommended to the Board for appointment. In identifying suitable candidates, the Nomination Committee normally: uses open advertising or the services of external advisors to facilitate the search considers candidates from different genders and a wide range of backgrounds considers candidates on merit and against objective criteria, ensuring that appointees have sufficient time to devote to the position, in light of other potentially significant commitments The Board continues to believe that gender based or other types of targets are inappropriate and that the blend of skills, knowledge and experience is of paramount importance. GOVERNANCE 67

70 GOVERNANCE AND DIRECTORS REPORT DIRECTORS REMUNERATION REPORT ANNUAL STATEMENT DEAR SHAREHOLDER On behalf of the Board, I am pleased to present the Remuneration Committee s Report for the financial year ended 30 September 2017 which is split into: (i) this Annual Statement, incorporating an at a glance summary setting out the remuneration decisions made this year as well as highlighting key elements of our proposals for the new Directors Remuneration Policy (ii) the Governance Summary Reward to support corporate success We believe that having a remuneration framework clearly linked to the KPIs by which we measure the delivery of our business strategy has supported Compass sustained success. As we reviewed our proposed Policy we sought to retain that link whilst ensuring that any future policy reflects the evolving external landscape. (iii) the proposed Remuneration Policy (iv) the Annual Remuneration Report on the implementation of the current Policy in the year ended 30 September 2017 and proposed implementation for next year This has been a busy and challenging year for the Committee. We began the year preparing for our three year policy review, recognising there has been significant change in the market and best practice has been evolving. We conducted our review and consulted widely, we have managed business as usual and then in the latter part of the year, we considered the terms for the retirement of our long-serving Group Chief Executive Officer (Group CEO) Richard Cousins and the succession of Dominic Blakemore as Group CEO on 1 April I wish to thank my Committee colleagues for their full support over the year. REMUNERATION POLICY REVIEW We began the policy review by examining our remuneration framework to ensure that it remains appropriate for our current business model, and that it supports our future ambitions by rewarding management to deliver our strategy of sustainable growth and returns. The Committee reviewed various emerging remuneration structures with the assistance of external advisors. After having discussions with management and seeking input from key shareholders at the very early stages of our review, the Committee concluded that the existing model (base salary, an annual cash bonus and a three year LTIP with a two year post vesting holding period linked to the KPIs by which we measure delivery of the business) is well understood by the business, supports our culture and is fundamental to maintaining the superior returns to shareholders which Compass has delivered over time. Consequently, we focused on: incentive measures (do they sufficiently support our strategy?) market effectiveness (does our remuneration enable us to pay appropriately for successful leadership?) emerging practice (does remuneration align to shareholder expectations and take account of new trends?) resilience (is remuneration capable of supporting talented leaders and their future successors?) 68